BIK Changes For January 2023

Significant Changes To Benefit In Kind (BIK) on Company Vehicles from 1 January 2023

As part of the government’s climate action plan to lower emissions there are some changes to the rules for calculating BIK on motor vehicles, which are due to come into play from January 1^st 2023. These changes may increase costs for both employers and employees where the vehicle is in the higher CO2 emissions bracket.

The new rules in 2023 will apply to all motor vehicles (including electric vehicles, see further detail below), whether the vehicle is acquired in 2023 or was made available to employees in earlier years of assessment.

Changes to BIK on Company Cars

Currently the BIK(benefit in kind) on company cars is based on the OMV (original market value) of the car and the mileage.  

From 1 January 2023 BIK on company cars will be determined based on both the business mileage undertaken and the vehicles CO2 emissions.

Table 1:

Table2:

Example

An employee has use of a car provided by his or her employer on 1 January 2023. The OMV (original market value) of the car is €35,000. Per the manufacturer, the car produces 130g/km in CO₂ emissions. The actual business kilometres in the year were 42,000 kilometres.

130g/km in CO₂ emissions puts the car in vehicle Category C as per Table 1. As the employee drove 42,000 kilometres in the year, the cash equivalent is equal to the OMV x 18% (mileage between 39,001 and 52,000, see table 2).

Using the same example above, where an employee travels 42,000 business kilometres in the year and the OMV of the car is €35,000 under the current rules the BIK calculation would be as follows:

€35,000 x 12% = €4,200

Changes to Benefit In Kind(BIK) on Electric Vehicles

The BIK regime is also changing for electric vehicles. 

Under the current rules, if the electric vehicle’s OMV (original market value) does not exceed €50,000, then no BIK arises. Where the electric vehicle costs more than this, the OMV is reduced by €50,000, to calculate the BIK.

However, from 1 January 2023 this will be changed. For an electric vehicle made available for an employee’s private use during the years 2023 – 2025, the OMV of the vehicle reduced by €35,000 in 2023, €20,000 in 2024 and €10,000 in 2025. The threshold will gradually reduce to zero by 2026.

If the reduction reduces the OMV to Nil, a BIK charge will not arise. Any portion of OMV remaining, after the reduction is applied, is chargeable to benefit-in-kind at the prescribed rates.

Example

An employee has the use of an electric company car on January 1 2023. The OMV of the car is €80,000.

Per the manufacturer, the car produces 50g/km in CO₂ emissions. The actual business kilometres in the year were 24,000 kilometres. 50g/km in CO₂ emissions puts the car in vehicle Category A as per Table 1 above.

As the cars which will be made available are electric cars, they will generally be ‘Category A’ vehicles i.e. vehicles with CO2 emissions between 0g/km and 59g/km inclusive.

The below examples details the effect of the tapering relief and change in BIK charges for employees over the next 4 years:

Changes to Benefit In Kind (BIK) on Company Vans

For the year of assessment 2023 and onwards the cash equivalent for vans will increase from 5% to 8% of the Original Market Value (OMV).

What should you do?

Employers who provide cars or vans to their employees will need to review the treatment of these benefits in advance of 1 January 2023 to determine the impact of the changes. They should contact their payroll administrator to make sure the correct amount of tax is paid from January. 

It would also be a good idea for employers to make their staff aware that there will be changes and they will notice this in their payslips from January.

If the company vehicles fall into the higher emission bands, it may be time consider purchasing smaller cars or electric cars. 

Employers should review the vehicles provided to employees in light of these changes.

Should you require any further information on this or any other matter relating to your business please do not hesitate to contact your DBASS adviser on ph. 01 849 88 00 or info@dbass.ie

By Claire Reilly

Tax Senior

DBASS Chartered Accountants

Disclaimer notice

This article is for discussion purposes only.  For further information on any of the topics covered in this article please contact a DBASS adviser on ph. 01 849 88 00.