Business Tips

Cars and Benefit in Kind. What Do I Pay?

Posted on by Comerford Foley
14
Jan

Last week our blog was on Thinking Time for 2022 and its focus was 5 issues for business owners to consider. In case you missed it see here. This week we are going to look at all things cars and benefit in kind. New car registrations peak in the early months of the year. Many businesses owners will buy cars for themselves or team members. So, we thought it would be a good time to delve a little deeper into the tax implications of this. We will look at

  • Benefit in Kind [BIK]
  • Calculation
  • Low business Kilometres
  • Employee Contributions
  • Part of the Year
  • Exemptions & Capital allowances
  • What’s coming

BIK

Where an employer purchases a car and provides it for an employee’s use there is BIK, once there is private use. Travelling to and from work is private use. The employees pay Income Tax, PRSI and USC on the value of the benefit.

A car also includes a crew cab and a jeep but does not include

  1. Motorbikes less than 410kg
  2. Vans
  3. Vehicles not used as a private vehicle such as a hearse or lorry

I can only picture the look on an employee’s face when you give them the keys of a hearse as their wheels to avoid BIK.

 

Calculation

You calculate BIK on the original market value [OMV] of the car. That’s easy if it’s a new car. The OMV will include Vat and VRT. If buying a second-hand car be very careful as BIK applies to the original cost of the car. If you buy a second-hand Mercedes E-class that costs €20000 now but had an OMV of €100000 your BIK is on the €100k figure.

You need to calculate the cash equivalent. This is applying a set percentage based on business kilometres travelled in a year. The more business kilometres travelled the lower the cash equivalent.

 

Kilometres Driven % of OMV
24,000 and below 30%
24.001 to 32,000 24%
32,001 to 40,000 18%
40,001 to 48,000 12%
48,001 and over 6%

 

It is advisable to keep a logbook of business kilometers travelled. If you don’t have a logbook Revenue will assume 8000 private kilometres. Let’s assume you travel 42000 kilometres and have no document showing private kilometres. Then your business kilometres  are 34000 and the percentage is 18.

 

If you travel less than 24000 business kilometres, then the percentage is 30% of the OMV. So, if a car has an OMV of €40000 and the employee does 20000 business kilometres then the cash equivalent is €12000. Where if you travel 50000 business kilometres in a year the percentage is 6% of the OMV. In this case, the cash equivalent is €2400

 

This is the amount that is notional pay for the employee. If we assume a monthly paid employee, using the two examples, their BIK will be €1000 and €200 per month. For a higher rate taxpayer paying tax at 52% that is a monthly cost of €520 and €104, or nil if you got a hearse. The employer will pay 11.05% employers PRSI on the BIK amount.

 

Low business kilometre

This can apply where an employee doesn’t travel more than 24000 kilometres per annum. The cash equivalent can be reduced to 24% provided the employee

  • works at least 20 hours per week
  • travel at least 8000 business kilometres per annum
  • spend at least 70% of their working time away from their workplace
  • keep a logbook that has details of business kilometres and work purposes

The OMV of the car you give to your employee is €35000. The employee travels 10000 business kilometres. And spends more than 70% of their time away from the workplace. In this case, the cash amount is

 

OMV €35000 24% €8400
Monthly Notional Pay [BIK] €700

 

Employee contributions

We will look at a couple of examples here

James LeBron works as a salesman for Office Supplies Ltd. The business is looking to buy a new car for James’ use at the start of 2022. The company has a cap of €35000 but the car James wants costs €40000. James agrees to pay the extra €5000 to get his car. During 2022 the company estimates that James will have 30000 business kilometres

2022

OMV €40000 24% €9600
Less contribution by James €5000
Notional Pay [BIK] €4600

 

For 2023 the notional pay is €9600 as James has already got a deduction for the payment he made in 2022. [Nb look at see what’s coming below]

If James had to pay €100 per month to the employer for private fuel, then that would also reduce the BIK amount

 

2022

OMV €40000 24% €9600
Less contribution by James €5000
Less monthly fuel contribution €1200
Notional Pay [BIK] €3400

 

Car for part of the year

It can be the case that your employee doesn’t have use of the car for a full year. This could be because

  • gave up a car before the end of the tax year
  • received a car during the year
  • travelled abroad for work without the car

 

A new salesman David Rooney joins Office Supplies Ltd on the 1st of May 2021. He travelled 18000 business kilometres from then until the end of 2021. The company car that David has had an original market value of €30000. We need to annualise the business kilometres to get the correct percentage.

Annual business kilometres are 18000 x 365/245 = 26816. This falls into the 24% band. You then reduce the BIK figure to take account of the number of days the car was in use

 

Cash equivalent
€30000 24% x 245/365 €4833

 

Exemptions & Capital allowances

The two main exemptions are

  1. An employee uses an employer provided car in a carpool
  2. Electric cars

For further information on the rules for a car pool to exist and on electric cars see here

Employers get a tax write off for the cost of the car through Capital allowances. They will get a tax write off of up to €24000 once the CO2 emissions category of the car is A or B.

For cars in category C, the tax write of is only 50% of the cost of the car or 50% of €24000, whichever is the lower amount.

 

And there are no capital allowances for cars in categories D and E.

For electric cars employers can get a 100% tax write off of the cost of the car up to €24000.

 

What’s coming

From 2023 onwards you will calculate BIK based on the CO2 emissions category of the car. If purchasing a car now or next year this is important. The lower the CO2 emissions category the lower the BIK rate will be for your employee. For a car in Category A [lowest CO2 emissions] where there is up to 26000 business kilometres the rate is 22.5%

 

If we look at David’s example and assume he has his car for all 2023 and it is a category A car. If his business travel in 2023 is up to 26000 then his BIK is

€30000 22.5% €6750

 

If his business travel is between 26000 and 39000 kilometres the BIK reduces to

€30000 18% €5400

 

But if his car was a gas guzzler and in the lowest CO2 emissions category, he will pay a lot more. For up to 26000 in a Category E car the BIK is

€30000   37.5% €11250

 

Electric vehicles make sense as there is no BIK once the cost of the car is less than €50000. Even if the cost is above €50000 you reduce the cash equivalent by €50000. See our previous blog on electric cars here

Summary

Employers need to look at the emissions category of any car they buy. If buying second hand don’t get caught and remember it’s the original market value of the car. If the business use of the car is more than 60% then the employer can get 20% of the Vat cost back. Beware that if you give an employee a monthly or weekly allowance to buy a car that is taxable pay. Electric makes huge sense from a tax point of view and will be attractive for business owners.

We provide this type of information to our clients to help them in their businesses. If you would like this type of service call Deirdre on 051396703 or contact us.

60 thoughts on “Cars and Benefit in Kind. What Do I Pay?”

  11. luckyniki says:

    Hi would you mind letting me know which web host you’re using?
    I’ve loaded your blog in 3 completely different browsers and I
    must say this blog loads a lot faster then most.
    Can you suggest a good internet hosting provider at a fair price?
    Many thanks, I appreciate it!

  16. เว็บสล็อต says:

    Magnificent goods from you, man. I’ve understand your stuff previous to and you’re just too excellent.

    I really like what you have acquired here, certainly like what you’re saying and the way in which you say it.
    You make it enjoyable and you still take care of to keep it sensible.

    I cant wait to read far more from you. This is really a wonderful web site.

  19. Kerrie Mantsch says:

    There are many different styles and designs to choose from, so you can find the perfect soulmate necklace to match your individual style and tastes. Some popular options include matching heart pendants, puzzle piece necklaces, and infinity symbol necklaces. No matter what design you choose, wearing a soulmate necklace is a daily reminder of your love and commitment to one another.

  20. Forrest Zwahlen says:

    In addition to being a beautiful piece of jewelry, a soulmate necklace is also a meaningful keepsake. It’s a piece of jewelry that you can wear for years to come, and one that you can pass down to future generations as a symbol of the love that you share.

  21. Sheldon Lancour says:

    A soulmate necklace typically consists of two pieces, each designed to be worn by one half of the couple. The two pieces are designed to fit together perfectly, just like the two of you fit together. When worn together, the necklaces form a complete symbol or design that represents the love and connection between the two of you.

  23. m88 says:

    It is perfect time to make some plans for the future and it is time to be happy.
    I’ve read this post and if I could I want to suggest you few interesting things or suggestions.
    Maybe you can write next articles referring to this article.
    I desire to read even more things about it!

  26. fb88 says:

    After going over a handful of the articles on your web page, I truly appreciate your way of writing a
    blog. I saved it to my bookmark site list and will be checking back soon. Please visit my website too and tell me your opinion.

  27. luckydays says:

    Greetings from Idaho! I’m bored to death at work so I decided to
    browse your site on my iphone during lunch break. I love the info you provide here and can’t wait to take a look when I get home.
    I’m shocked at how fast your blog loaded on my mobile
    .. I’m not even using WIFI, just 3G .. Anyways, wonderful site!

  32. https://bet-promokod.ru says:

    1xBet является очень популярных на рынке. https://bet-promokod.ru/ Огромный выбор событий из мира спорта и киберспорта, десятки открытых линий, высочайшие коэффициенты. Также, БК имеет широкий функционал и одна из немногих дает возможность совершать ставки по уникальным промокодам. Используя их, вы можете получить настоящие деньги, не внося абсолютно никаких средств. Это реально! Узнать актуальный промокод вы можете прямо сейчас, однако использовать его необходимо в соответствии с условиями и инструкциями, которые приведены ниже.

  33. slot joker says:

    You actually make it appear really easy with your presentation however I to find this matter to be actually
    something that I think I’d never understand. It seems too complicated and extremely large for me.
    I am taking a look forward for your next put up, I will attempt to get the dangle of it!

  34. ทดลองเล่นสล็อต pg ใหม่ล่าสุด says:

    Magnificent items from you, man. I’ve be mindful your stuff
    previous to and you’re just too wonderful. I really like what you’ve obtained right
    here, certainly like what you are stating and the way during which you assert it.
    You’re making it enjoyable and you continue to take care of to
    stay it wise. I can not wait to read far more from you. That is actually
    a terrific website.

  39. joker slot says:

    Hi there just wanted to give you a quick heads up. The text in your post seem to be running off the screen in Chrome.

    I’m not sure if this is a format issue or something to do
    with browser compatibility but I thought I’d post to let you know.
    The style and design look great though! Hope you get the issue fixed soon. Many thanks

  40. joker 8899 says:

    I have been exploring for a bit for any high-quality articles or blog posts in this sort
    of area . Exploring in Yahoo I ultimately stumbled upon this web site.
    Reading this info So i’m satisfied to convey
    that I have an incredibly good uncanny feeling I discovered
    exactly what I needed. I most for sure will make sure to don?t put out of your mind this
    website and provides it a glance regularly.

  46. เกมสล็อต 777 says:

    I think that everything wrote made a bunch of sense.
    But, think on this, what if you composed a catchier title?
    I ain’t saying your information isn’t solid., but
    what if you added something to possibly get a person’s attention? I mean Cars and
    Benefit in Kind. What Do I Pay? – Comerford Foley is kinda vanilla.
    You might glance at Yahoo’s home page and see how they write article headlines to grab
    people to click. You might add a related video or a picture
    or two to get people interested about everything’ve got to say.
    In my opinion, it would bring your website a little livelier.

  52. joker slot thailand says:

    Hi this is kind of of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to
    manually code with HTML. I’m starting a blog soon but have no coding knowledge so
    I wanted to get guidance from someone with experience.

    Any help would be greatly appreciated!

  53. 918kiss เล่นผ่านเว็บ says:

    Wonderful goods from you, man. I have understand your
    stuff previous to and you are just too wonderful.
    I actually like what you have acquired here, certainly like what you are saying and the way in which you say it.
    You make it enjoyable and you still take care of to keep it wise.
    I can not wait to read far more from you. This is actually a great site.

  60. User Login says:

    I have read your article carefully and I agree with you very much. This has provided a great help for my thesis writing, and I will seriously improve it. However, I don’t know much about a certain place. Can you help me?

Leave a Reply