New rules for benefit in kind on company vehicles could increase employees' tax bills.

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Temporary measures to reduce impact on employees

By  Robert Lohan C.T.A., F.C.A. 

Last October’s budget indicated that the system of calculating BIK on company vehicles would encourage the use of electric and lower emission vehicles.

However, the impact of these changes on employees’ take home pay on top of the cost of living crisis, has caused the government to introduce a temporary measure to reduce the tax cost to individuals in 2023. The scheme will revert to the original proposal from 1 January 2024.

What’s Happening?

The Original Market Value (OMV) of most vehicles will be reduced by €10,000 for 2023 only, which should reduce the amount of BIK assessed on most people, in turn increasing their take home pay.

  1. Company Cars

The Original Market Value (OMV) of cars in Categories 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.

Lower limit Upper limit A B C D E
Kms Kms % % % % %
26,000 22.50 26.25 30.00 33.75 37.50
26,001 39,000 18.00 21.00 24.00 27.00 30.00
39,001 48,000* 13.50 15.75 18.00 20.25 22.50
48,001* 9.00 10.50 12.00 13.50 15.00

*The upper limit in the highest mileage band will also temporarily reduce by 4,000km.

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

For example:

Megan drives 30,000 km annually on business in a diesel car provided by her employer, which emits between 139g/km and 179g/km of CO2 according to the manufacturer, putting it in Category D. It originally cost €35,000, so that is the OMV used for BIK calculations.

In 2022 the BIK on this was 24% of the OMV i.e. €35k or €8,400 – i.e. €8,400 will be included as income when calculating Megan’s PAYE, PRSI and USC payments.

In 2023 the BIK on this is 27% of the OMV less €10k or €6,750. (27% X (€35k less €10k)), a reduction in notional pay of €2,700 (vs 2024).

In 2024 the BIK the BIK will be €9,450.

  1. Electric Vehicles

The OMV on Electric Vehicles will also be reduced by €10,000 for the purposes of calculating the BIK. This, in addition to, the existing relief of €35,000, means that the OMV of an Electric Vehicle will be reduced by €45,000 for the 2023 tax year. If the reduction results in the OMV being Nil, then a BIK charge will not arise.

  1. Vans

When calculating the BIK on company vans, the benefit will be calculated based on 8% of the Van’s OMV regardless of its CO2 emissions.

The temporary BIK reductions will also apply in the case of company vans. When calculating the taxable BIK, the OMV of a company van can be reduced by €10,000 for the 2023 year.

How will these changes impact employers?

An employer who provides company vehicles to their employees, will now need to review their BIK calculations.

As the changes are retrospective to 1 January 2023, employers may find that their employees have overpaid their BIK and an adjustment may need to be made in the next payroll run to correct this and to collect a reduced BIK charge for the remainder of the year.

For further information on any of the above matters, please contact Robert Lohan: rlohan@dhkn.ie  or Michelle Egan: megan@dhkn.ieGalway Financial Services Centre, Moneenageisha Road, Galway. Tel: 091-782020            www.dhkn.ie 

This update is intended as a general guide to the subject matter and should not be used as a basis for decisions.  Whilst every effort has been made to ensure the accuracy of the content, no liability can be taken for any omissions or errors.  Professional taxation advice should always be taken prior to proceeding with any transaction giving rise to tax consequences.

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