Benefit-in-Kind (BIK) tax is a type of tax that is applied to the benefits that an employee receives from their employer, such as a company car, phone, or health insurance. In Ireland, BIK tax is calculated on the value of the benefit provided to the employee and is based on the employee’s marginal rate of income tax.
The government has introduced changes to BIK for 2023. As part of the government’s Climate Action Plan that is aiming to lower emissions, they have implemented changes to how Benefit-In-Kind will be paid on company vehicles. The changes to BIK impact all vehicles even if it was acquired before 2023.
It’s important to note that BIK tax is not the same as Pay-As-You-Earn (PAYE) tax. BIK tax is calculated on the value of the benefit provided to the employee, while PAYE tax is calculated on the employee’s income. Both types of tax are calculated separately, and the employee will be liable for both.
BIK tax can have a significant impact on an employee’s take-home pay, especially if they are provided with a company car or other high-value benefit. It’s important for employees to understand how BIK tax is calculated and how it will affect their pay, so they can plan their finances accordingly.
Employers also need to be aware of their responsibilities when it comes to BIK tax. They are responsible for calculating the value of the benefit provided to the employee and for reporting this to the Revenue Commissioners. If an employer fails to report a benefit, they may be liable for penalties and interest on any unpaid tax.
New Benefit-In-Kind Impact on Company Cars
The new calculations for BIK consider the C02 emissions of a vehicle. Higher emission vehicles are now put onto a higher rate of BIK compared to greener vehicles. The breakdown of C02 emissions is below.
|Emission Category||C02 Emissions (C02 g/km)|
|A||0g/km up to 59g/km|
|B||More than 59g/km to 99g/km|
|C||More than 99g/km to 139g/km|
|D||More than 139g/km to 179g/km|
|E||More than 179g/km|
The impact of increasing BIK has led to employees attempting to return company cars and swap them out for lower emission vehicles. Although this green vehicle initiative initially looks like it is promising for reducing average C02 emissions it may possibly increase the average if companies find that going to a grey fleet model is more viable. Then employees will be using their own vehicles with fuel allowance. Personal vehicles tend to be older than leased vehicles and this leads to higher emission vehicles being on the road.
New Benefit-In-Kind on Company Vans
The impact on commercial vehicles differs slightly from company cars. Like company cars the BIK is based on the Original Market Value (OMV) of the vehicle. The rate for commercial vehicles is increasing from 5% to 8%.
New Benefit-In-Kind on Electric Vehicles
Electric Vehicles are no longer exempt from BIK. They will still be on a lower rate than your standard vehicle. However, the BIK discounts on electric vehicles is slowly being phased out over the next four years. The discount will be a reduction on the OMV of the vehicle. Starting at €35,000 reduction in 2023 and reducing to €10,000 by 2025.
What impact does this have on the market?
There have already been several employees attempting to return company vehicles early and wanting to switch to lower emission vehicles. Of course the move towards lower emission vehicles will be beneficial but it may not have the intended effect. The exchange of newer vehicles for older personal vehicles could have an overall negative impact on the desired outcome from changing BIK. One month after the change and the results can only be measured months after to get an accurate idea of the aftermath of new Benefit-In-Kind.
If you have any questions on how Benefit-in-Kind might impact you throughout 2023 please drop us a line on 01 866 0520 or firstname.lastname@example.org