Company Cars create bigger BIK tax bills in 2023

Update, March 8th 2023: Temporary changes have just been announced to company vehicle BIK after complaints that reforms introduced on Jan 1st 2023 were leading to big increases in tax bills for employees. One key change is an introduced relief on €10,000 on the Original Market Value of vehicles in the A-D categories.

There may be more changes on the way so if in doubt, check in with your payroll team and/or financial advisors to ensure they are keeping up with these changes and how they affect employee pay.

Irish employers should assess their vehicle BIK schemes, as taxation changes have a big effect on employees’ paychecks from January 1st.

Many workers with company cars and vans are now seeing increased benefit-in-kind (BIK) bills taken from their pay cheques, as the result of recent changes in how the tax is calculated.

The method of calculating BIK on company cars from Jan 1st 2023 introduced a carbon emissions to encourage employers to make their vehicle fleets emit less CO2. Vehicles that emit more CO2 are taxed at a higher rate of BIK, while those with lower emissions are charged less.

Employer-provided vehicles and BIK

When an employer provides a car or van to staff, the employee may be charged tax on the benefit in kind (BIK) as the vehicle is also now available to them also for private use.

Section 6 of Finance Act 2019 introduced a new method of calculating the cash equivalent of the use of a car. The new rules take effect from Jan 1st 2023 and apply to all vehicles, including electric, no matter when they were acquired or made available.

March 7th update: the Government said that in the Finance Bill 2023, it will temporarily introduce a relief on €10,000 on the Original Market Value (OMV) of some vehicles, upon which the tax is calculated. The changes are to be applied retrospectively from January 1st and will remain in place until the end of the 2023.

The relief will apply to cars in the categories of A-D but not E, the most polluting vehicles. “This means that, for the purposes of calculating BIK liability, employers may reduce the OMV by €10,000,” the Department of Finance said in a statement.

The treatment will also apply to all vans and electric vehicles. For electric vehicles, the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 that is currently available for EVs, meaning that the total relief for 2023 will be €45,000.

BIK and Company Cars in 2023

BIK on the use of an employer provided car is now determined based on both the business mileage undertaken and the vehicle’s CO2 emissions.

The BIK tax bands are defined by the CO2 emissions of a car and give you a percentage of the car’s original market value (OMV) on which employees will be taxed. They are:

Band A: 0-59g/km
Band B: 60- to 99g/km
Band C: 100- to 139g/km
Band D: 140- to 179g/km
Band E: 180g/km and up

These bands are then broken down by annual business mileage.

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	52,000* temp. reduced to 48,001km in 2023	13.5	15.75	18	20.25	22.5
52,001	—	9	10.5	12	13.5	15

Other changes in BIK – Company Vans and Electric Vehicles

The cash equivalent on the use of a company van has also increased from 5% to 8% of the OMV of the van.

The preferential rate of BIK on electric vehicles is also being phased out. The legislation also reduces the BIK exemption from €50,000 in 2022 to 0% in 2026:

2023: €35,000
2024: €20,000
2025: €10,000
2026: NIL

BIK and your business – what you need to do

Businesses who provide vehicles to their employees, that are then available for private use, should review their policies in light of these changes, both ongoing and for the future.

Employers are required to maintain accurate mileage records. Revenue have advised that employers should review this regularly (at least quarterly) to ensure the BIK recorded is as accurate as possible. From a payroll perspective, records should be maintained on a weekly/monthly basis to calculate the BIK to be reported via the payroll returns.

As well as the immediate effects on payroll, calculating the outcome of these BIK rate changes in future years is essential in helping determine if investing in a company car is worth it – both for businesses and employees. This is the appropriate opportunity to consider whether the provision of cars as a benefit-in-kind will be a part of your remuneration policy going forward.

Got questions on BIK and your business? Our experienced team can assist you in assessing and managing these and any other payroll changes. Talk to us today, or request a call-back at your convenience, by phoning 021 432 1799 or emailing info@paulodonovan.ie.

Big changes in 2023 for BIK on Irish company cars