This week a client’s query provided the idea for our blog. Our client is looking to buy an electric car through their company and he had a few queries around BIK, grants, etc. Should you buy an electric car? We will look at
- Why an Electric Vehicle [EV]
- Benefit in Kind [BIK]
- Charging equipment etc
- Changes in 2023
- Summary
Why an EV?
EY did a recent survey of 9,000 people across 13 countries. It found that more than 40% of consumers that will buy a car in the next 12 months will buy an EV. Also notable was that of those that already owned an EV 80% would buy an EV again. The main reason for this increase is greater environmental awareness. People are willing to pay a premium to switch to green motoring. The main concerns about going electric were
- the charging infrastructure and
- speed of charging
An electric vehicle derives its motive power only from an electric motor. Hybrid vehicles are not electric vehicles.
While there was greater demand in Ireland for EV’s the demand in other countries was higher. Norway is one of the frontrunners to adapt, where at least one in every two vehicles purchased is a battery EV. See the Irish Times article on this here
Benefit in Kind [BIK]
There was a full exemption to BIK on any EV first provided to an employee during the 2018 year of assessment. The exemption applies to new and used EVs, regardless of the original market value [OMV] of the vehicle. The BIK exemption depends on when the EV is first provided to the employee for the employee’s private use. If provided in the period 10th October 2017 to 9th October 2018 the BIK position for the employee is as follows
- Fully exempt from BIK in the period 1 January 2019 to 31 December 2020, irrespective of the OMV of the vehicle
- Fully exempt from BIK in the period from 1 January 2021 to 31 December 2022, where the OMV of the vehicle does not exceed €50,000, and
- Partially exempt from BIK in the period from 1 January 2021 to 31 December 2022, where the OMV of the vehicle exceeds €50,000
Where an EV is first provided to an employee for private use either before the 10th October 2017 or on or after the 10th October 2018, the BIK position is
- fully exempt from BIK in the period from 1 January 2019 to 31 December 2022, where the OMV of the vehicle doesn’t exceed €50,000
- partially exempt from BIK in the period from 1 January 2019 to 31 December 2022, where the OMV of the vehicle exceeds €50,000
To get the partial exemption you reduce the OMV by €50,000 to get the cash amount of the vehicle.
Let’s look at an example here to see what the tax cost would be if your company buys an EV for you. We will use our client’s query as an example. The cost of the car he was looking at was €55,000. After purchasing the car there is an SEAI grant of €5,000. His query related to the original market value of the car. Is it €55,000 or €50,000? Revenue guidance on this is quite clear. As SEAI grants are paid after the registration of the vehicle, the OMV is not reduced by the value of the SEAI grant. So, in this case, the OMV is €55,000.
| Original Market Value | €55,000 | |
| Reduce by | €50,000 | |
| Revised lower OMV | €5,000 | |
| Business mileage | less than 24,000 kilometres | 30% |
| Benefit in Kind | €1,500 | |
| Tax Payable | 52% | €780 |
| Monthly Tax cost | €65 |
Let’s compare that to a regular petrol car
| Original Market Value | €55,000 | |
| Business mileage | less than 24,000 kilometres | 30% |
| Benefit in Kind | €16,500 | |
| Tax Payable | 52% | €8,580 |
| Monthly Tax | €715 | |
| Monthly saving with an EV | €650 |
Charging Equipment etc
There is no BIK on an employee or director on charging facilities provided by their employer. This is on the basis that the equipment is available at any of the business premises, and it is available to all. If the employer installed charging equipment at the home of an employee there would be BIK for him/her. That would be at a rate of 5% of the value of the equipment. So, if the equipment had a value of €2,000 the annual BIK charge would be €100.
Where an employer provides an EV for the employee’s private use the employer would usually pay the running costs. This would include tax, insurance, repairs, and fuel. There is no extra BIK on the employee for these costs.
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For capital allowances purposes the employer can write off the cost of the new EV, up to an amount of €24,000. Under the accelerated capital allowances scheme, the write-off can be €24,000 in year 1. The employer doesn’t have to write off in year 1 should they wish and can use the other scheme instead. They would write off €24,000 at 12.5% over 8 years.
Jake Breen runs a successful solicitor’s practice and has profits of €150,000 in 2021. He wants to do his bit for the environment so decides to buy himself a new Nissan Leaf for €40,000. He installs a charging point at his workplace which is available to all the staff. As the car is 100% electric, he can take a deduction of €24,000 in year 1. He will also get a deduction for the full cost of the charging equipment in year 1.
| Jake’s profits | 2021 | €150,000 |
| Less car cost | max allowed | €24,000 |
| Less charging equipment | €2,000 | |
| Net Taxable Profits | €124,000 | |
| Tax saving €26,000 | 52% | €13,520 |
A limited company pays tax at 12.5% so the tax saving for the company would be €3,250
Changes in 2023
A few changes are coming in in 2023. There is a new method to calculate the cash amount of the car which forms the base for the BIK number. The starting point will be the CO2 emissions category of the vehicle. For example, a Category A vehicle will have an emissions band of 0g/km up to and including 59g/km. A category B vehicle will have more than 59g/km up to and including 99g/km.
The lower your emissions category the less BIK you will pay. I refer you to Table B on page 29 of the guidance. The new BIK percentages are then on Table A on page 28 of that same guidance. Click here and go to the end of the page to the Tax & Duty Manual
Summary
So, is an electric vehicle an option for me or not? From a tax point of view, there are significant savings for you and your business. There is no BIK if the cost of the EV is €50,000 or less. You will see from the example we used there was a net saving of €650 per month for an EV compared to a non EV. This is significant. Over 5 years that is a net tax saving of €39,000. It makes huge sense from a financial and environmental point of view. A charging point at the business premises makes it easier for you and other employees. It seems like a no-brainer to me. We need to be more like the Norwegians!
Interested in finding out how we can help your business? Call Deirdre on 051396703 or start here. Tell us a bit about you and your business and we will see if we can help.
