Finance Bill 2023 includes a temporary change in the Benefit-in-Kind regime for company cars.
The change is in response to the reaction by individuals who have been significantly impacted by the changes that were introduced with effect from 1 January 2023.
Finance Bill 2023 proposes to introduce the following temporary changes for the 2023 tax year:
According to accountancy firm Crowe, this means that for the purposes of calculating BIK liability, employers may reduce the OMV by €10,000. This treatment will apply to all company provided vehicles including vans and electric vehicles. For electric vehicles, the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 that is currently available for EVs, meaning that the total relief for 2023 will be €45,000.
The upper limit in the highest mileage band is amended by way of a 4,000km reduction, so that the highest mileage band is now entered into at 48,001km.
Once Finance Bill 2023 has been enacted, these temporary measures will be retrospectively applied from 1 January 2023 and will remain in place until 31 December 2023.
According to Crowe tax partner Grayson Buckley, changes introduced by Finance Act 2019 in relation to the calculation of BIK charges on company-provided vehicles only came into effect from 1 January 2023.
The changes were introduced as part of the government’s overall plan to address climate change with the intention being to incentivise employers to provide employees with low-emission cars.
“These changes are having significant impacts on the net take-home pay for employees/directors who have the use of company vehicles, with the impact now being felt at a time when living costs have also risen significantly,” said Buckley.
Finance Act 2021 further extended relief on a tapered basis from a BIK charge arising on electric vehicles provided to employees/directors in the period 1 January 2023 to 31 December 2025.
The overall impact of the changes that came into effect from 1 January 2023 is:
What is the charge to BIK on an employer-provided vehicle and what does it mean for the employee?
An employee/director is chargeable to tax on the BIK arising where by reason of their employment a vehicle is made available (without a transfer of ownership) to them, and the vehicle is available for their private use.
The BIK charge is equal to the cash equivalent of the use of the vehicle less any contributions made by the employee/director.
Changes effective 1 January 2023
With effect from 1 January 2023, how the cash equivalent of the use of employer-provided vehicles is calculated has changed as outlined below.
Company cars
Prior to 1 January 2023 the cash equivalent of the use of a car was equal to 30% of the original market value (OMV) of the car reduced accordingly for business mileage travelled.
From 1 January 2023, the cash equivalent is determined by multiplying the OMV by the applicable percentage.
To determine the applicable percentage, the employer must:
Electric vehicles
Prior to 1 January 2023, an electric vehicle made available for an employee’s private use during the years 2019–2022 was fully exempt from BIK if the OMV was less than €50,000.
Where a full exemption did not apply, partial relief was granted by reducing the OMV by €50,000 when calculating the cash equivalent of the vehicle, and then reduced accordingly for annual business mileage travelled.
From 1 January 2023, for an electric vehicle made available for an employee’s private use during the years 2023 to 2025, the cash equivalent will be calculated based on the actual OMV of the vehicle reduced by:
This reduction applies irrespective of the actual OMV of the vehicle or when the vehicle was first provided to the employee.
If the reduction reduces the OMV to nil, a BIK charge will not arise. Any portion of OMV remaining after the reduction is applied is chargeable to BIK at the prescribed rates, taking into consideration CO2 emissions of the vehicle and annual business mileage.
Company vans
From 1 January 2023 the cash equivalent of the use of a van increased from 5% to 8% of the OMV of the van.
Have a tax query, Contact the Crowe tax team here