If you have staff then you may be familiar with the term benefit in kind. A benefit in kind is something that is provided by an employer to an employee at a subsidised rate or for no charge at all. Some of the more common BIKs include company cars, accommodation, loans at preferential rates and medical insurance premiums. When provided to an employee, an employer must account for income tax, PRSI and USC on the value of these items.
Company cars are amongst the most common BIK provided by employers. When an employee has the use of a company car for business, it is inevitable that the car will also be used for personal reasons, and it is this personal use that gives rise to a benefit in kind and which is subsequently taxed.
In order to determine how to tax the benefit of a company car, it must first be established what the value of the benefit is. The first step is to identify the Original Market Value of the vehicle. This is generally taken to be the list price of the vehicle, including VAT and VRT at the time of first registration. If the employee is required to make a payment to the employer in respect of any part of the cost of providing or running the car, then the open market value is reduced by this amount.
The next step is to identify the number of business kilometres that the employee uses the car for each year, and to multiply the original market value by the percentage applicable to the number of business kilometres. The higher the business kilometres, the lower the percentage applied. For example if an employee has the use of a company car with a value of €25,000 and uses it for 35,000 business kilometres each year, the benefit in kind would be €4,500 (i.e. €25,000 x 18% which is the relevant percentage for 35,000 business kilometres). This amount would then be added to the employee’s salary and taxed via the payroll system.
If a car is made available to, and is used by more than one employee then it may potentially be classed as being in a car-pool and an employee will not be subject to tax on its use. In order for a car to be classed as part of a car-pool any private use of the car by the employees must be merely incidental to business use, and the car must not normally be kept overnight at the home of any of the employees.
Where an employee has less than 24,000 business kilometres per year, they would normally be subject to a benefit in kind of 30% of the original market value of the car. However this can be reduced to 24% if certain conditions are met. Firstly the employee must work at least 20 hours per week and must travel at least 8,047 business kilometres each year. They must also spend at least 70% of their time working away from the employer’s premises. Finally the employee must retain a log book detailing their business kilometres, the business transacted, and the dates and times of the travel. The log book must also be certified by the employer as being correct.
There is currently a benefit in kind exemption in place for electric company cars purchased since 2019. No charge will arise for the employee if the original market value of the vehicle is less than €50,000. Where the OMV is greater than €50,000, a partial exemption may apply.
If you’re unsure whether or not a company car would suit your situation, get in touch and we’ll help you decide.