Ireland – Revisions to Taxation of Company Cars Rules

In mid-2022, Irish Revenue announced significant changes to the taxation of company cars in Ireland.  These changes took effect from 1 January 2023, and are summarised below.

For many employees, the impact of these changes was a significant increase in the tax liability arising in respect of their company car.  At a time when the cost-of-living crisis is impacting many households, such increases were considered ill-timed, to such an extent that the Department of Finance decided to intervene. 

Accordingly, on 7 March, temporary measures were introduced for the 2023 tax year which apply retrospectively to 1 January 2023.¹  The measures are as follows:

• a reduction of €10,000 to the Original Market Value (“OMV”) of vehicles in “A” to “D” categories;
• the upper limit of the highest mileage band (originally set at 52,00KM) has been reduced by 4,000KM to 48,001KM for 2023 (KM = kilometers).

WHY THIS MATTERS

For many employees, these temporary measures will be welcome, and should mitigate the financial impact of the original changes.

For employers, the impact of these changes will be as follows:

1  Payroll processes will need to be updated again to account for the temporary measures.

2  Given the retrospective application, it will be necessary to reconcile the year-to-date position to account for the changes.

3  Where employees benefit from the changes, the employer PRSI liability on company cars will fall, reducing the cost to the company.

More Details

Approach to Calculating Benefits-in-Kind (BIK) on a Company Car up to 31 December 2022

Previously, the BIK of an employer-provided vehicle was simply calculated based on the OMV of the car and the amount of business kilometers travelled by the employee during a tax year.

By using the OMV and annual business KM driven, a “cash equivalent” was determined by reference to a percentage value of the OMV, as per the following table:

                                                  Up to 31 December 2022

Source: KPMG in Ireland

For example, if an employee drove 49,000KM in a year and the OMV of his company-provided car was €65,000, the value of his annual company car BIK was €3,900 (i.e., €65,000 * 6%).  Assuming the employee paid tax at the marginal rate of tax of 52 percent, his annual tax liability in respect of the company car would be €2,028.

Tax Changes from 1 January 2023

With effect from 1 January 2023, the car’s CO2 emissions need to be considered when calculating the benefit-in-kind.  The new rates are set out in the table below.

Source: KPMG in Ireland

* Revenue confirmed that Worldwide Harmonised Light Vehicle Testing Procedure (WLTP) ꟷ as opposed to the New European Driving Cycle (NEDC) CO2 testing methodology ꟷ should be used to determine the CO2 emissions per KM for the purpose of calculating the BIK due.

** This table includes the reduced threshold.  From 1 January 2024, the lowest rates will apply from 52,000KM.

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 calculation.²  These rules apply for fully electric vehicles only, i.e., hybrid vehicles are not covered by these favourable BIK rules.

A tapering applies from the 2023 year of assessment, such that in calculating the company vehicle BIK the OMV exemption threshold for electric vehicles will decrease to €45,000 in 2023.  When the new rules originally took effect on 1 January 2023, the OMV discount was set at €35,000, but an extra €10,000 was added to the reduction under the temporary announcement, which brings the total OMV discount on electric company cars to €45,000 for 2023. 

As things stand for subsequent years, a reduction of €20,000 from the OMV is permitted in 2024, and finally falling to €10,000 for 2025.

For example, for an electric vehicle acquired on 1 January 2023, with an OMV of €70,000, performing annual business mileage of 24,000KM, the BIK is calculated for the years 2023 to 2026 as summarised in the table below.

Source: KPMG in Ireland

In addition, no taxable benefit arises where an employer provides facilities for the charging of vehicles on its business premises provided all employees can avail themselves of the facilities.

It should also be possible for an employer to reimburse home electricity costs relating to charging the employer-provided EV without tax consequences.

Company Vans

There has also been a change introduced with effect from 1 January 2023, to the rate applicable in calculating the cash equivalent for a company-provided van.  This rate has now been increased from 5 percent to 8 percent of the OMV of the van.

Contacts