Anger as people with company cars hit with huge benefit-in-kind tax increase

Thousands of workers with company cars are to be hit with a massive hike in tax.

The changes, coming in January, mean that benefit-in-kind (Bik) tax is going to soar by 40pc, in some cases, for those who are given a vehicle by their employer because they have to travel for their jobs.

It comes at a time when petrol and diesel prices have soared along with a surge in the cost of living. There could be as many as 150,000 company cars on Irish roads, according to industry experts.

One sales rep said: “Benefit-in-kind rates are increasing significantly in 2023, to the tune of hundreds of euro per month. Along with the energy and cost-of-living crisis, many of us dread the new year.”

And the changes come after Covid restrictions initially forced off the road those whose work means they travel around the country.

As they were not clocking up any mileage, it meant they were being hit with the highest rate of Bik.

This went on for seven months, until Revenue relaxed the Bik rules for those with company cars.

Now they are to be hit with a change in the rules for calculating Bik. The calculation of the tax will change to a combination of mileage and CO2 emissions from 2023 onwards.

The Bik charge will be based on the vehicle’s CO2 emissions and business mileage undertaken. And it will be between 9pc and 37.5pc of the vehicle’s open market value.

Bik is a tax on benefits that an employee receives that cannot be converted into cash but have a cash value. An employee is liable to pay income, USC and PRSI on the value of the benefit, which is typically the provision of a car for work.

From January, CO2 will be factored in when calculating Bik, according to consumer tax manager at Taxback.com, Marian Ryan.

There will be five emissions bands from A, which is the lowest, to E, the highest.

Currently, a car worth €37,000 doing 25,000 business kilometres per annum and emitting 150g CO2 per kilometre would have a Bik of €8,880.

Under the new regime, the car will come in at band D and the tax amount will rise to around €12,500.

This is an increase of €3,620, calculations by Ms Ryan of Taxback.com show.

The Bik regime is also changing for electric vehicles (EV). Under the current rules, if the electric vehicle original market value (OMV) does not exceed €50,000, then the OMV is reduced by €50,000, effectively to zero.

Over €50,000 in value, the existing rates are used based on the business mileage – from 6pc to 30pc.

The new regime provides for a reduction of €35,000 in 2023, €20,000 in 2024 and €10,000 in 2025. The threshold will gradually reduce to zero by 2026, with a new BIK rate of up to 22.5pc being applied.

This is lower than the top 30pc Bik rate for internal combustion engine vehicles.

The rate for vans will go up from 5pc to 8pc from January.

One of a number of reps contacted by this journalist about the tax changes said the Government is trying to incentivise companies to provide electric vehicles.

“But most reps (like me) would cover half if not all of the country in their jobs so EVs aren’t viable as they don’t have the range capacity,” he said.

“And the significant hikes in Bik next year would only be a disincentive for drivers anyway.”

He added that in many cases, it would be cheaper to run his own car but not every company allows this.

“Many of us have asked for a car allowance instead but the company is washing its hands, saying that it’s a Revenue issue, but this denies the fact that a company car is the only choice we are given by our employers.”

*This article was amended to state that under the current rules, if the electric vehicle original market value (OMV) does not exceed €50,000, then the OMV is reduced by €50,000, effectively to zero.