Company car users are going to be paying more in tax from this year, as from January 2023 the way in which Benefit in Kind (BIK) tax is calculated on your fleet car has changed. Essentially, the BIK system is now - 15 years after the general motor taxation system - moving to a carbon-emissions-based setup, and it's quite a complex one.
Ireland's BIK tax bands
There are now bands for BIK tax, which run from A to E and are defined by the CO2 emissions of a car that will give you a percentage of your car's original market value (OMV) on which you'll be taxed. These are the BIK tax bands:
Band A: 0-59g/km
Band B: 60- to 99g/km
Band C: 100- to 139g/km
Band D: 140- to 147g/km
Band E: 148g/km and up
Now, where it gets properly complex is that each band doesn't come with a fixed taxable percentage. Instead, the bands are further broken down by annual business mileage. Bands within bands, if you like.
BIK in Ireland varies by business mileage
So, if you drive up to 26,000km per year for business purposes, then the bands work like this:
Band A: 0-59g/km: 22.5 per cent
Band B: 60- to 99g/km: 26.25 per cent
Band C: 100- to 139g/km: 30 per cent
Band D: 140- to 147g/km: 33.75 per cent
Band E: 148g/km and up: 37.5 per cent
If you're a higher mileage driver, covering between 26,001km and 39,000km per year for business reasons, then the rates decrease:
Band A: 0-59g/km: 18 per cent
Band B: 60- to 99g/km: 21 per cent
Band C: 100- to 139g/km: 24 per cent
Band D: 140- to 147g/km: 27 per cent
Band E: 148g/km and up: 30 per cent
Cover more kilometres still for work reasons? Good news then; your BIK rate will be even lower if you're doing between 39,001km and 52,000km per year:
Band A: 0-59g/km: 13.5 per cent
Band B: 60- to 99g/km: 15.75 per cent
Band C: 100- to 139g/km: 18 per cent
Band D: 140- to 147g/km: 20.25 per cent
Band E: 148g/km and up: 22.5 per cent
There's a final category for ultra-high mileage drivers, who cover more than 52,001km per year, which works out at:
Band A: 0-59g/km: 9 per cent
Band B: 60- to 99g/km: 10.5 per cent
Band C: 100- to 139g/km: 12 per cent
Band D: 140- to 147g/km: 13.5 per cent
Band E: 148g/km and up: 15 per cent
Don't get too comfortable, though. According to the CSO, the average annual mileage in Ireland is 16,000km per year, so most of us will fall into the highest taxation bracket.
Let's assume for a moment that you're driving a car that cost €28,000 new, and that it has emissions of 99g/km. If you're covering a notional 40,000km per year (which is a lot) then you'll pay 15.75 per cent of €28,000 which is €4,410. Under the old BIK system, you'd have paid €3,360.
Irish BIK on electric cars
How can you trim that bill? By getting an electric company car, although there's a trap-door in the system for EVs, too.
For 2023, if you're driving an electric company car, you can automatically knock €35,000 off the original market value of the car for taxation purposes. This means that, for example, if you're driving a new MG 4, or a basic Renault Zoe, or a Peugeot e-2008, then you'll actually pay no BIK at all, as the €35,000 reduction is more than the value of the car.
If your EV cost more than €35,000, then you pay your tax in Band A on the remaining amount. Assuming that you're covering less than 26,000km per year, that'll be 22.5 per cent. If your shiny new EV cost €70,000 originally, then you'll pay 22.5 per cent of €35,000 which works out at €7,875.
Remember I said there was a trap-door, though? Well, in 2024 you'll only be able to roll back €20,000 of the value of your EV, and in 2025 it'll be just €10,000. In 2026? A big fat zero, meaning that your company car BIK could double by 2026 even if you're driving an EV. This 'tapering' of BIK relief for electric vehicles is coming in for heavy criticism from the Irish car industry, which says that it's not going to encourage the take-up of electric cars in the all-important business motoring sector.
Business mileage records
There's a final wrinkle, which is that your employer - or you, if you're self-employed - is supposed to make regular reports to the Revenue Commissioners as to what mileage you're covering and how much tax you ought to be paying. The recommendation is that at the very least quarterly reports on business mileage should be submitted, and that weekly or monthly records should be kept.
If your company car is a van or commercial vehicle, then the system is at least a little simpler, although still more expensive than it was. From January 1st 2023, you'll be paying eight per cent (up from five per cent) of the cash equivalent.
Ask us anything
Still not crystal clear what the BIK rules will mean for you? Don't hesitate to send us a query via our Ask Us Anything page.
(With thanks to Grant Thornton)