09 March 2023
Employment Tax
Impact: High
Summary
Where an employer provides a vehicle (car or van) that is available to an employee for his or her private use, a benefit-in-kind (BIK) tax charge will typically arise.
From 1 January 2023, the taxable BIK rules for petrol and diesel cars were changed to include vehicle emission categories (see our prior bulletin here). As a result of the change, the net pay of individuals who are provided with less environmentally friendly cars has been negatively impacted. Users of employer-provided electric cars have also been negatively impacted as the favourable BIK treatment introduced in 2017 is being phased out between 2023 and 2026.
These changes, although signalled well in advance, were not well received by employees due to the fact that their net pay has decreased (in some cases quite significantly) at a time when many are struggling to deal with high energy prices and cost of living challenges.
In recent weeks, the Government announced that a Finance Bill would be introduced to provide for the extension or amendment of some existing cost of living measures. In a statement on 7 March 2023, it was confirmed that a temporary change to the recently introduced BIK rules is to be included in these cost of living measures.
The Detail
While details of the bill have yet to be published (this is expected in the coming days), the Government has announced that a relief of €10,000 will be applied to the Original Market Value (OMV) of cars in Category A – D to reduce the amount of BIK payable. The relief will not apply to cars in Category E, i.e vehicles with the highest CO2 emissions (details on categories A -E and the associated emission ranges are available in our prior bulletin).
Accordingly, for the purposes of calculating the BIK liability, employers may reduce the OMV by €10,000. This treatment will apply equally to all cars, vans and electric vehicles (EVs).
For EVs, the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 that is currently available, meaning that the total relief for EVs in 2023 will be €45,000.
The upper limit in the highest mileage band will also be amended by way of a 4,000km reduction, so that the highest mileage band will now be entered into at 48,001km – see the updated table below.
| Business Mileage (kilometres) | Taxable BIK (% of OMV based on Vehicle Category) | ||||
| A | B | C | D | E | |
| 26,000 and below | 22.5% | 26.25% | 30% | 33.75% | 37.5% |
| 26,001 to 39,000 | 18% | 21% | 24% | 27% | 30% |
| 39,001 to 48,000 | 13.5% | 15.75% | 18% | 20.25% | 22.5% |
| 48,001 and over | 9% | 10.5% | 12% | 13.5% | 15% |
Example:
John has the use of a car provided by his employer; it has an OMV of €35,000. John travels 47,000 kilometres on business each year. Per the manufacturer, the car produces 85g/km in CO₂ emissions (category B).
The annual 2023 BIK before the temporary measure is introduced would be €5,513, i.e. 35,000 x 15.75%.
The annual 2023 BIK after the temporary measure is applied will be €3,938, i.e €25,000 x 15.75%.
John pays tax and PRSI totalling 52% on this BIK, meaning that John’s annual take home pay will increase by €819 as a result of the temporary change (5,513 – 3,938 @ 52%).
Employer PRSI on the BIK will also decrease by €174 (5,513 – 3,938 @ 11.05%).
These temporary measures will be retrospectively applied from 1 January 2023 and will remain in place until 31 December 2023.
What this means
While the temporary change for the 2023 tax year will be welcomed by employees, it will give rise to a considerable amount of additional work for employers, who already incurred significant time in January adjusting for the changes.
The actions now required for employers are as follows:
1. Re-calculate the annual 2023 BIK charge for all employees who have use of a company car/van.
2. Undertake an exercise to ensure that the year-to-date BIK position for 2023 is correct in light of these changes.
3. Communicate details of the temporary BIK changes to employees.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
● Ian McCall, Partner | ian.mccall@vialto.com
● Aoife Reid, Partner | aoife.reid@vialto.com
● Keith Connaughton, Partner | keith.connaughton@vialto.com
● Clara Flynn, Director | clara.flynn@vialto.com
Further information on Vialto Partners can be found here: www.vialtopartners.com
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