In this article, we will cover the following topics
- How Benefit-in-Kind works in Ireland for company cars.
- What is Original Market Value and why it is important.
- Annual Business Mileage
- What if the company car is not available for the full year
Difference between the U.K and Ireland
In the UK there is a Benefit in Kind (BIK ) regime that charges an employee Income Tax if they have the use of a car, and there is a separate charge for the fuel used in the car, unless the employee pays for that. In Ireland, if you have a company car you will pay some benefit in kind.
How it works
Tax rules are that you pay PAYE on a cash equivalent calculated using Original Market Value and the annual mileage you drive for business.
Original Market Value
Original Market Value is calculated to be the list price of the car less 10% discount. It bears no relationship to what you actually paid for the car, so for example, if you buy a secondhand car, what you actually paid is ignored and Original Market Value is used to calculate the benefit in kind.
Then you take a percentage of the OMV and add that to your monthly salary in accordance with the number of kilometers driven by you for work.
Annual Business Mileage
| Kilometres for work per year | Percentage of OMV |
|---|---|
| 0 - 24,000 | 30% |
| 24,001 - 32,000 | 24% |
| 32,001 - 40,000 | 18% |
| 40,001 - 48,000 | 12% |
| over 48,001 | 6% |
Private mileage is assumed as 8,000 kilometres unless you have proof that it is lower.
So if you have a company car where the list price was €26,550, deduct 10% giving an Original Market Value of €23,895. Say you don’t do much mileage for the company, and drive less than 24,000 kilometres. You are charged 30% of €23,895 which is €7,168. Divide €7,168 by 12 months and add that to your salary to get the monthly equivalent, so in this example, you will get taxed on €597 per month.
An employee can pay towards the cost of the car and get a reduction in the BIK and any cash paid reduces the BIK charged. So in the above example if you paid your employer €200 per month towards the cost of the car you would get that take off the BIK and only pay tax on €397 per month.
What if the Company Car is not available for the Full Year?
If the employee does not use the car for the full year then an adjustment in Benefit-in-Kind will need to be made.
This will occur if the following situations occur:
- If the employee receives the car after the start of the tax year.
- If the employee stops using the car before the end of the tax year.
- If the employee spends some time working abroad.
Vans and Benefit-in-Kind
The rules of original market value apply for vans too. However, the multiplier is 5% and not the 30% as shown above. No benefit-in-kind is needed if the van is necessary for the performance of the job. The private use of the van is not allowed.
Electric cars and Benefit-in kind
The big change in this area is applying BIK to electric cars. For electric cars under €50,000, employees won’t pay anything. However, there is another catch. The limit applies before the current €10,000 of grants (€5,000 SEAI grant and €5,000 in VRT rebate) are drawn down, so while a car may cost a buyer €35,000 for example, for the purposes of BIK it is regarded as a €45,00 car. Add more than €5,000 of options to the car and BIK starts to apply.
I hope you now understand how benefit-in-kind works in Ireland with company cars. Please feel free to contact us with any questions you have.
