Change to Company Vehicle BIK Rules 2023

Company Vehicles: New Benefit in Kind (BIK) rules from 1st January 2023

From 1st January 2023 changes have been made to the Benefit in Kind rules for employer-provided vehicles. These changes are part of the government’s Climate Action Plan to lower emissions by 2023.

Background

An employer provided vehicle encompasses all cars or vans made available to an employee. An employee may be chargeable to tax on the benefit in kind (BIK) arising where, by reason of his or her employment, a vehicle is made available (without a transfer of ownership) to him or her and the vehicle is, in the tax year, available either for that individual’s private use or to his or her family or household.

A vehicle is regarded as being made available to an individual by reason of his or her employment if it is made available to them by his or her employer (or a person connected with the employer). A vehicle made available to an employee is deemed to be available for private use unless the terms on which it is made available prohibit private use, and no such use is made of the vehicle in the tax year.

Travel to and from work is generally regarded as private use. Once a vehicle is made available to the employee for private use, it is irrelevant whether or not there is any private use – a BIK charge will arise either way.

Benefit-in-kind: Effect on Company Cars from 1 January 2023

Section 6 of Finance Act 2019 has introduced a new method to calculate the cash equivalent of the use of a car. These changes will take effect for 2023 and subsequent years. The new rules in 2023 will apply to all cars (including electric vehicles), whether the car is acquired in 2023 or was made available to employees in earlier years of assessment.

From 2023 onwards, the BIK cash equivalent on the use of an employer provider car will be determined based on both the business mileage undertaken and the vehicle’s CO2 emissions.

Effect on Company Vans from 1 January 2023

For the year of assessment 2023 and onwards the cash equivalent for vans will increase from 5% to 8% of the Original Market Value (OMV).

Effect on Electric Vehicles from 1 January 2023

The Department of Finance announced in Budget 2022 the phasing out of the 0% BIK on Electric Vehicles over the next 4 years. The Finance Act 2021 extended the favourable BIK regime for certain electric vehicles made available to employee’s in the period from 1 January 2023 to 31 December 2025. The relief from the BIK charge arising during this period applies on a tapered basis.

For an electric vehicle made available for an employee’s private use during the years 2023 – 2025, the cash equivalent will be calculated based on the actual original market value (OMV) of the vehicle reduced by:

• €35,000 in respect of vehicles made available in the 2023 year of assessment;
• €20,000 in respect of vehicles made available in the 2024 year of assessment; and
• €10,000 in respect of vehicles made available in the 2025 year of assessment.

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 benefit-in-kind at the prescribed rates.

Section 118 (5H) TCA 1997 provides that from 1 January 2018 any expense incurred by an employer in the provision of electric vehicle charging facilities for employees and directors on the employer’s business premises, once all employees and directors can avail of the facility are exempt from the charge to BIK.

Records

Employers must put in place a robust business process whereby business mileage covered by employees is recorded and can be verified (e.g. the employee could keep a logbook showing business journeys).

Employers and employees using an alternative basis for calculating BIK are required to keep a logbook. The logbook must be certified by the employer as being true and accurate, to the best of his or her knowledge and belief.

In the case of vans, Revenue will accept a Tachometer/Tripmeter reading taken each Friday evening and again on Monday morning to show that no private mileage was undertaken over the weekend.

Records should be maintained on a weekly / monthly basis in order to calculate the BIK to be reported on a real time basis via the weekly/monthly payroll returns. Revenue have advised that employers should review this regularly (at least quarterly) to ensure the BIK recorded to Revenue is as accurate as possible.

The full information pack on the new BIK rules can be found here.

For more information on how this might affect your business, please contact one of our offices. .