New Benefit In Kind (BIK) rules come in effect from 1 January 2023
Significant changes to the basis of taxing the BIK arising from the provision of a company car to employees have now come into effect from 1 January 2023. This change will effect employees where a company vehicle is also made available for private use.
The changes will apply to all existing company cars (including electric vehicles) as well as new cars provided to employees on or after 1 January 2023.
Employers who provide cars to their employees will need to take account of these changes when completing their payroll and reviewing the calculation of their current BIK charges for employees. It is the responsibility of employers to ensure that this is being reported correctly to Revenue.
Previously the BIK on company cars was based on the Original Market Value (OMV) of the company car with the applicable tax rate varying from 30% to 6% (depending on the mileage band, with the lower rates applying where the employee has incurred significant business related travel).
The new system will still use both the OMV and business mileage as factors in calculating the BIK charge however it will also take into account the vehicles CO2 emissions. The relevant tables are set out below;
|CO2 Emissions Category
|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 99/km up to and including 139g/km|
|D||More than 139g/km up to and including 179g/km|
|E||More than 179g/km.|
|Business Mileage and CO2 Emissions Category
|Lower Limit||Upper Limit||Vehicle Cat A||Vehicle Cat B||Vehicle Cat C||Vehicle Cat D||Vehicle Cat E|
|Kilometers||Kilometers||BIK %||BIK %||BIK %||BIK %||BIK %|
An employee has the use of a company car on 1 January 2023. The OMV of the car is €26,000. The car produces 182g/km in CO2 emissions. The actual business kilometres travelled in the year is 36,000.
182g/km in CO2 emissions puts the car in vehicle category E. The applicable BIK rate is therefore 30%.
The cash equivalent/BIK is equal to: OMV x 30% = €26,000 x 30% = €7,800.
The employee therefore has a taxable BIK of €7,800.
For electric vehicles provided for an employee’s private use, the BIK will be calculated based on the OMV of the vehicle reduced by;
If the reduction reduces the OMV to Nil then no BIK charge arises. Any portion of the OMV remaining after the reduction is applied is then chargeable to BIK using the prescribed rates outlined above.
An employee has the use of a company car on 1 January 2023. The OMV of the car is €60,000. As per the manufacturer, the car produces 56g/km in CO2 emissions. The actual business kilometres travelled in the year is expected to be 28,000. 56g/km in CO2 emissions puts the car in Category A.
The cash equivalent/BIK is equal to: OMV (Less Tax Free Threshold for year) x 18%
= €25,000 x 18% = €4,500.
The employee therefore has a taxable BIK of €4,500.
The flat rate BIK charge for company provided vans has increased from 5% to 8% of the OMV of the vehicle with effect from 1 January 2023.
The exemption for electric vans will be tapered on the same basis as for electric cars as set out above.
Employers who provide company car or vans to employees for private use will need to review the BIK calculation for these vehicles and how they are being taxed through the payroll. Employers are responsible for collection the correct tax from employees and reporting this to Revenue.
Employers are required to maintain records of the kilometres travelled by each employee. It is recommended that these records should be maintained on a weekly or monthly basis in order to calculate the BIK on a real time basis.
Our tax department are on hand if you have any queries in relation to the taxation of company cars and are available to assist your business in implementing these changes.