In keeping with the Government’s general theme of continuing to support workers and help tackle the cost-of-living crisis, the minister’s speech included positive enhancements to some existing employment tax initiatives, designed to ease the financial burden on PAYE workers.
BIK on employer-provided vehicles
With effect from 1 January 2023, benefit-in-kind (BIK) on company-provided vehicles is calculated based the vehicle's CO2 emissions.
The CO2 emission rate of the vehicle now has a major impact in the calculation of the BIK, in addition to the Original Market Value (OMV) and annual business KMs driven.
In recognition of the negative financial impact of the new BIK rule on employee's net pay, the government announced in March of this year, a temporary change to the 2023 rules. While the CO2 categories have not changed, the temporary rules provide a reduction of €10,000 to the OMV of the vehicles in A to D categories which encompass most vehicles. There is no reduction to OMVs for cars in the E emissions category.
Another helpful temporary measure saw the upper limit of the highest business mileage band (originally set at 52,000KM) reduced by 4,000KM to 48,001KM for 2023.
These temporary measures were set to expire at the end of 2023, however, in a welcome move, the minister confirmed that the above temporary amendments will remain in force for another year until the end of 2024.
BIK on electric vehicles
Finance Act 2022 extended the application of the special BIK rules on electric vehicles to 2025 which permit a fixed reduction in the OMV for the purposes of the BIK calculation.
The OMV discount was set to taper to zero by 2025 with BIK calculations thereafter set to be based on full OMV of the vehicle.
In an effort to continue to encourage the adoption of greener vehicles, the minister announced that the tapering of this discount will be deferred by two years.
As a result, the €35,000 OMV discount will apply for 2024 and 2025 and will taper to €20,000 for 2026 and €10,000 for 2027.
Key Employee Engagement Programme (“KEEP”)
KEEP was introduced in 2018 to improve the attractiveness of the Small and Medium Enterprise (SME) employment offering.
The scheme provides for tax advantageous share options specifically for employees and directors of certain qualifying SME companies.
While Finance Act 2022 gave effect to a number of positive enhancements to the scheme, there were some outstanding commitments which were subject to Ministerial Commencement Order.
Following EU state aid approval, the minister confirmed that the government will shortly be able to deliver on these outstanding enhancements which include an extension of the scheme until 31 December 2025 and an increase in the lifetime company limit for KEEP shares from €3 million to €6 million.
While this is a positive move, it is not a new measure as such. There remain many practical issues with the KEEP scheme and it is hoped that the process of reviewing share based remuneration announced in the Budget will lead to further practical refinements to the KEEP measures that will make it more attractive for SMEs.
Share-based remuneration consultation
Share-based remuneration is important in many industry sectors wherein employees expect share participation as part of their total remuneration package.
This is particularly important in the technology and pharmaceutical sectors where Ireland as a country needs to remain competitive. It is therefore crucial that our current tax system for share based remuneration is equitable, simplified and in sync with other OECD jurisdictions.
In his speech, the minister recognised the importance of share based remuneration for employers to incentivise and retain key employees and announced that a public consultation will shortly be launched and stakeholders will be invited to submit their views aimed at modernising this area.
Queries? Get in touch
The measures announced in Budget 2024 will affect businesses and individuals across Ireland. If you have any queries on the impact of these changes for your business, please contact Olive O'Donoghue of our tax team.
We'd be delighted to hear from you.
Olive O’Donoghue
Partner
KPMG in Ireland
