New BIK rules may be costly for staff
By Robert Lohan, Tax Director at DHKN
From 1 January 2023 Benefit in Kind (BIK) on company cars will be calculated by reference to their CO2 emissions. The BIK on company vans will also increase, from 5% to 8% on this date.
For many employees this will change the amount of PAYE, PRSI and USC they will have to pay each month.
It may also cause employers to re-consider what vehicles they provide – or whether they should provide any at all – as well as how they manage collection and reporting of data on employees’ usage of their company vehicles.
What’s Happening?
As part of the government’s Climate Action Plan 2021 the way in which BIK on company vehicles is calculated will be linked to the CO2 emissions of a car in addition to its Original Market Value (OMV) and the business mileage driven in a year.
How will this impact staff?
There are three main changes to the calculation of BIK and most staff who are provided with a vehicle by their business will be impacted. The new rules will apply to all cars whether they were acquired in 2023 or made available to employees in earlier years.
- CO2 Emissions
Up to 2022, BIK is calculated as a percentage of the Original Market Value of employer-provided vehicle starting at 30% for vehicles used for lower business kilometres (below 26,000km) and tapering to 6% for those with business usage over 48,000km in a year.
For example:
Megan drives 30,000 km annually on business in a diesel car provided by her employer, which originally cost €35,000. The BIK on this is 24% of €35k or €8,400 – i.e. €8,400 will be included as income when calculating Megan’s PAYE, PRSI and USC payments.
From 1 January 2023 the calculation will factor in the vehicle’s CO2 emissions as well. BIK will be calculated as a percentage of the Original Market Value of an employer-provided vehicle starting at 37.5% for higher CO2 emitting vehicles with business usage below 26,000km and tapering to 9% for those with low emissions and business usage over 52,000km in a year.
Megan’s vehicle emits between 139g/km and 179g/km of CO2 according to the manufacturer, putting in Category D. In 2023, the BIK on this is 27% or €9,450. If Megan is in the higher income tax band, the additional PAYE and PRSI she will pay each year is €462. USC of 4.5% or 8% will also apply.
- Electric Vehicles
For certain electric vehicles (EVs) made available for an employee’s private use the OMV on which BIK is calculated is reduced by €50,000 for 2022 and earlier.
For 2023, the OMV of an electric vehicle will be reduced by €35,000 for the purposes of calculating Benefit in Kind. If the reduction results in the OMV being Nil, then a BIK charge will not arise.
This relief will be further reduced in 2024 (€20,000) and €2025 (€10,000) before being eliminated entirely from 2026 onwards. This reduced relief applies to all EV’s regardless of when they were purchased.
Kristof drives an EV acquired by his employer in 2021 for €50,000. He drives 30,000km on business each year. In 2022 his BIK is Nil because the OMV is reduced by €50,000 to zero.
In 2023 the OMV will be reduced to €15,000. Most EV’s fall into Emission Category A, meaning that his BIK will by 18% of the OMV, or €2,700. He will pay PRSI, PRSI and USC on this amount at his marginal rates.
- Vans
BIK on vans is calculated as 5% of the vehicle’s OMV in 2022.
In 2023 this will increase to 8%, regardless of CO2 emissions.
How will these changes impact employers?
The main impact of these changes, all other things being equal, is on employees. Employers will have to fund additional employer PRSI payments if the BIK assessed on their staff increases under the new rules.
However, employees may look to their employers to reduce or eliminate their extra tax burdens. This should provide an opportunity for employers to review their approach to supplying vehicles for staff use.
What should an employer do to prepare for this change?
- Review records for current employees to ensure that mileage recorded is accurate and that BIK charged reflects this.
- Review the types of vehicles needed by the business with the aim of switching to low emission or EV vehicles when possible.
- Consider replacing some company vehicles with fixed allowances paid monthly e.g. for executive vehicles.
- Brief relevant staff on the potential impact to their take home pay from 2023 onwards.
- Consider replacing business provided cars with vans.
Other considerations for employers
Regular records
Employers are required to put in place ‘a robust business process whereby business mileage covered by employees is recorded and can be verified’.
Because BIK should be reported on a weekly/monthly basis in line with payroll returns this has increased the need for good record-keeping. This is an area that Revenue can look closely at in some businesses.
Revenue has advised that employers should review their records at least quarterly.
Motor Trade
The rules for calculating BIK for employees in the motor trade or motor leasing are quite detailed and further advise should be sought if this is relevant for your business.
EV Charging Facilities
The provision of EV charging facilities by an employer on its premises will be exempt from BIK as long as all employees and directors of the business can avail of the facility
For further information on any of the above matters, please contact
Robert Lohan: rlohan@dhkn.ie
Galway Financial Services Centre, Moneenageisha Road, Galway.
Tel: 091-782020 www.dhkn.ie
78 Merrion Square, Dublin 2.
Tel: 01- 4825822
This newsletter 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.
