Changes to Benefit in Kind (BIK) on Company Vehicles

woman driving company car

by Jillian O’Sullivan, Partner, Corporate Compliance at Grant Thornton

The Government announced (7 March 2023) temporary changes to the Benefit In Kind (BIK) calculations for company vehicles. This second round of changes to the BIK rules for company vehicles in 2023 is a temporary measure to apply from 1 January 2023 until 31 December 2023.

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The BIK system moved to a CO2 based system since 1 January 2023 to encourage the use of electric vehicles and lower emission cars. However, many employees with company vehicles experienced large increases in their income tax liabilities since this new system came into effect at the start of the year. In recognition of this, and the pressures on families and businesses due to the cost of living and energy crises, the Government will introduce this new temporary measure during the Finance Bill 2023 process.

Company Cars – 2023

The Original Market Value (OMV) of cars in Category A-D, will be reduced by €10,000 which will consequently reduce the BIK charge.  This reduction is not applicable to cars in Category E.

The upper limit in the highest mileage band will also temporarily reduce by 4,000km (See Table 1 below).

Table 1 – The amount of business mileage and CO2 emission category (new temporary changes)

Lower Limit Upper Limit A B C D E
Kilometres Kilometres % % % % %
26,000 22.5 26.25 30 33.75 37.5
26,001 39,000 18 21 24 27 30
39,001 48,000* 13.5 15.75 18 20.25 22.5
48,001* 9 10.5 12 13.5 15

*temporary reduction from 52,000kms

Table 2 – The CO2 emissions category of the car

Vehicle Category CO2 Emissions (CO2 g/km)
A 0g/km up to and including 59g/km
B More than 59g/km up to and including 99g/km
C More than 99g/km up to and including 139g/km
D More than 139 g/km up to and including 179g/km
E More than 179g/km

Example

An employee has the use of a car provided by his or her employer on 1 January 2023. The car produces 75g/km in CO₂ emissions, putting the vehicle in Category B. The actual business kilometres in the year are expected to be 47,000 kilometres. The OMV of the car is €32,000. With the new temporary measure applied, the OMV will reduce to €22,000.

BIK Calculation: Cash Equivalent (OMV) €22,000 x 15.75% = €3,465

Using the same example above, without the temporary measure, where an employee travels 47,000 business kilometres in the year and the OMV of the car is €32,000 – the BIK calculation would be as follows:

€32,000 X 15.75% = €5,040

This shows a reduction in notional pay of €1,575 when the temporary measure is applied.

Company Vans – 2023

The temporary changes will also apply to company vans. The cash equivalent for vans will be calculated as 8% of the OMV, with a €10,000 reduction in the OMV.

Electric Vehicles – 2023

Electric vehicle users will welcome an increase of €10,000 to the existing deduction available of €35,000. This means that the cash equivalent will be calculated based on the actual OMV of the vehicle reduced by €45,000.

Payroll Implications

An employer may need to capture these changes to the BIK on company vehicles in the next payroll submission.  As these changes are effective from 1 January 2023, this may mean making a once-off adjustment to BIK for company provided vehicles in the next payroll submission to capture any excess BIK applied from 1 January 2023.  Where a tax refund arises for the excess BIK applied and where the employee is on the cumulative basis of assessment, any tax refund due should filter through the payroll function.

About the author

Jillian O’Sullivan leads the company secretarial and employer solutions team at Grant Thornton, which includes the provision of outsourced payroll services. She assists companies establishing a presence in Ireland, from their initial setup to their on-going compliance, payroll and other outsourced service requirements. She also deals with all areas of corporate compliance and governance. Jillian has significant experience in the restructuring of corporate entities and groups, both medium and large, and in the implementation of related tax planning and succession schemes. She lectures extensively and facilitates seminars on both the role and responsibilities of directors in companies.