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Why Now Might Be The Time To Go Electric
DBASS Blog | Sept 2022
Is the increase in Petrol or Diesel prices making you think of changing your petrol or diesel company car to an electric one?
Here are some of the tax implications to consider before you make the change.
- Benefit In Kind (BIK)
Any company employee/director who uses a company car for their own personal use must pay additional taxes for this benefit through their wages. This is known as Benefit in Kind (BIK). For the purposes of BIK an‘electric vehicle’ is one that derives its motive power exclusively from an electric motor, therefore Hybrid vehicles are not considered electric vehicles.
The BIK charge on a petrol or diesel car is between 6%-30% of the Original Market Value (OMV) per annum depending on business kilometres undertaken during the year. On a car worth 50k the BIK tax charge could be as high as €7,800 (52% x (€50,000x 30%)).
However, if the OMV of the electric car is €50,000 or less, then no BIK charges arise. This relates to electric cars made available for an employee’s private use from 2018 to 2022. Where a car is valued at more than €50,000 the OMV is reduced by the €50k allowance to significantly reduce any BIK charge.
For the years 2023 to 2025 the €50k allowance will be reduced on a sliding scale as follows:
- €35,000 in respect of vehicles made available in 2023;
- €20,000 in respect of vehicles made available in 2024;
and
- €10,000 in respect of vehicles made available in 2025.
Where a car worth €50k is made available for an employee’s private use in 2023 the OMV is reduced by only €35k thus depending on business kilometres the BIK tax charge could in the region of €2,340 (52% x (€50,000 - €35,000 x 30%))
If the allowance reduces the OMV to nil, then a BIK charge will not arise. Any portion of OMV remaining after the reduction is applied, is chargeable to BIK at the prescribed rates.
- Accelerated Capital Allowance
The Accelerated Capital Allowance (ACA) is a tax incentive scheme that promotes investment in energy efficient products & equipment. Accelerated capital allowances of 100% of the capital expenditure incurred on motor vehicles can be claimed for the year in which the motor vehicle was first used for the purposes of the trade. The vehicle must be new and must be owned by the business, vehicles that are leased, let or hired will not qualify for the allowance.
The vehicle must also be included in the list of energy-efficient equipment maintained and published by Sustainable Energy Authority of Ireland (SEAI) in order to qualify under the scheme.
https://triplee.seai.ie/AcaProducts/Search.aspx
For cars coming under the category “Electric and Alternative Fuel Vehicles” the accelerated allowance is based on the lower of the actual cost of the vehicle or the specified amount of €24,000.
The emissions based scheme will not apply where a person opts to avail of accelerated capital allowances. A person can opt for one scheme or the other but not both insofar as business cars are concerned. The scheme runs until 31 December 2023.
- Value Added Tax (VAT)
There are no specific rules relating to reclaiming VAT on electric cars, these motor vehicles fall under the rules that govern reclaiming VAT on qualifying passenger motor vehicles. When a business is considering purchasing a vehicle the ultimate cost of the vehicle will be determined by a business’s ability to recover the VAT. Most businesses are aware that VAT can be reclaimed in respect of the purchase of a commercial vehicle but may not be aware that an element of VAT can be reclaimed in respect of passenger motor vehicles.
What is a passenger motor vehicle for VAT purposes?
For VAT purposes the term passenger motor vehicle includes:
- estate cars
- sports motor vehicles
- station wagons
- motor cycles
- motor scooters
- mopeds
The definition also includes single person vehicles but does not include vehicles designed and constructed for the carriage of more than 16 persons (inclusive of the driver) and vans, etc.
To reclaim VAT on a passenger motor vehicle the following conditions must be met;
- The vehicle must be used for at least 60% business use for the first two years and;
- Was first registered for Vehicle Registration Tax (VRT) purposes on or after 1 January 2009 up to 31 December 2020 and has CO2 emissions of less than 156g/km (i.e. CO2 emission bands A, B and C) or
- Was first registered for Vehicle Registration Tax (VRT) purposes on or after 1 January 2021 and has CO2 emissions of less than 140g/km (i.e. CO2 emission bands A and B).
Where all of the above conditions are met, 20% of the VAT on the purchase price can be reclaimed. However, if the business use falls beneath the 60% in the first two years, as portion of the VAT reclaimed will need to be repaid to Revenue.
Further guidance contains more detailed information on deduction of VAT on certain cars.
- Vehicle Registration Tax (VRT)
Series production passenger cars (VRT categories A and B) that are:
- powered only by an electric motor
- and
- registered before 31 December 2023
are eligible for relief from VRT up to a maximum amount of €5,000.
Vehicles with an Open Market Selling Price (OMSP) of up to €40,000 will be granted relief of up to €5,000. Vehicles with an OMSP of greater than €40,000 but less than €50,000 will receive a reduced level of relief. Reliefs have been removed for any electric vehicles above €50,000.
By Claire Reilly
Tax Senior
DBASS Chartered Accountants
For more information on any of the above schemes or discuss how DBASS can assist your business with any taxation related matters, please do not hesitate to contact us on <ph. 01 849 88 00> or info@dbass.ie.