Company Car Benefit in Kind Explained
Many companies offer different perks to attract talent. For example, some companies offer company cars as a job benefit and they even provide a personal fuel allowance. But keep in mind this isn’t just free fuel for you, paid by the company.
Based on Irish law, these are non-cash benefits offered to employees and you’re bound to pay tax on benefit in kind (BIK) on company cars. In this guide, we explain what the company car benefit in kind is and how it’s calculated.
What is company car benefit in kind?
A benefit in kind (or BIK) is any non-cash benefit you provide to your employees, but which has monetary value. It’s also known as notional pay or fringe benefits.
A company car is considered a non-cash benefit. For this purpose, company car benefit in kind in Ireland applies when an employee has the benefit of using a company car for personal purposes.
The employer must deduct Pay As You Earn (PAYE), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) from the employee’s pay on the value of a benefit. And the employees must pay tax on their benefits if their income is more than €1,905 in a year.
Why do you have to pay the company car fuel benefit?
Because we don’t really get free things as adults in today’s society, we have to pay taxes. Company car benefit in kind is a tax.
Basically, you, as employee, get the benefit of using your employer-provided vehicle in your personal hours and perhaps you also get free fuel if the company provided you with a business fuel card. But Revenue has to tax it.
But what is the value of company car benefit and how is it calculated? Let’s find out!
Fuel cards make it easy to manage all your fuel-related operations. You get an online account where you can find all your fuel expenses, invoices and receipts. This makes it tons easier to manage your taxes.
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How is the value of company car benefit calculated?
So, if the company car is made available to employees for private use, there’s benefit in kind on company cars they have to pay to Revenue.
To calculate BIK, take into account the cash equivalent of the benefit of the car, business kilometres driven and the original market value (OMV).
What is the original market value?
The original market value, or OMV, is the cost of the car in Ireland prior to the car’s first registration. OMV includes all Irish taxes and duties.
Basically, OMV is the list price of the car, including VAT (Value-Added Tax) and VRT (Vehicle Registration Tax) at the time of its first registration.
It doesn’t matter if you purchased the car second hand, the OMV is still used to calculate BIK. So, you might have bought a used car for the price of €15,000, let’s say. But if the car was originally worth €25,000, VAT and VRT included, then the taxable benefit will be calculated on the €25,000 cost.
How is BiK calculated?
BIK on the use of an employer-provided vehicle, being either a car or van, is equal to the cash equivalent of the use of the vehicle minus any amount the employees themselves pay for running the vehicle to the employer.
The cash equivalent of the use of a car is currently equal to a percentage of the original market value (OMV) of the car.
How to calculate the cash equivalent
The cash equivalent is calculated by applying a percentage to the OMV.
The percentage is based on how many kilometres the employee drives for business in one year. The more business kilometres, the lower the cash equivalent.
See below the applicable percentages.
|Business km driven||Percentage of OMV|
|24,000 and less||30%|
|24,001 – 32,000||24%|
|32,001 – 40,000||18%|
|40,001 – 48,000||12%|
Let’s take an example! You provide an employee a company car with an OMV of €30,000 and the employee is not required to pay anything for the running expenses. Let’s assume business travel is less than 22,000 km. That means the applicable percentage is 30%.
So, that means OMV €30,000 x percentage of OMV 30% = €9,000 cash equivalent.
Meaning company car benefit in kind is €9,000.
It also means €750 per month should be added to the employee’s salary.
If the employee doesn’t have exact records to prove how many kilometres they drove in a year, you must assume 8,000 km are for private use and you deduct them from the total kilometres driven in that year.
But there’s a catch! If the employee drives less than 24,000 kilometres a year, the cash equivalent may be reduced by 20%. Which means you could apply an OMV percentage of 24% instead of 30%. To get this further reduction:
- The employee must work at least 20 hours a week
- The employee must travel at least 8,000 km for work per year
- The employee must spend at least 70% of their working time away from the workplace
- The employee must have a detailed log of business kilometres and work purposes
Another example! What if the employee makes contributions for the running costs or for using the car?
In that case, you deduct the amount they pay from the cash equivalent. Let’s take the following situation:
- You provide the employee with a vehicle having an OMV of €25,000
- The employee travels 27,000 business kilometres in a year. That means the applicable percentage is 24%.
- The employee pays you €50 per month to use the car for personal travels. That means they pay you €600 a year (€50 x 12 = €600).
In this case, the calculation looks like this:
- OMV and applicable percentage: €25,000 x 24% = €7,500
- Deduct the employee’s payment: €7,500 – €600 = €6,900
So, the total pay sums up to €6,900.
Exemptions from company car benefit in kind in Ireland
There are certain BIK exemptions that apply for car-pools and electric vehicles.
A car-pool means a company car is available and used by more than one employee, the private use of the car is minimal and it’s not kept overnight at or near an employee’s home.
For a company car provided as a car-pool, there’s no need to pay PAYE (Pay As You Earn), PRSI (Pay Related Social Insurance) and USC (Universal Social Charge).
Fully electric cars are also exempt from BIK at the moment, but the situation is about to change starting with January 2023. For cars made available to employees between 1 January 2023 and 31 December 2025, a partial relief will apply. This will reduce the OMV of the electric car by:
€35,000 for cars made available during 2023
€20,000 for cars made available during 2024
€10,000 for cars made available during 2025
If the OMV of the electric car is nil after applying this relief, the no BIK will arise.
How to manage your taxes easier?
Fuel cards can make it tons easier to manage your taxes. You can easily record kilometres with the help of a business card for each of their vehicles.
That’s not the only benefit you’ll get from using a company fuel card. Other fuel card benefits include:
- Save costs on fuel by either pump discounts or fixed fuel priced
- Manage your fuel consumption better
- Have access to interest-free credit to pay for fuel and other motoring expenses
- Plan your budget better
The easiest way to get a fuel card that covers your business needs completely is to compare the market. Basically, hit the button below, give us a few details and we’ll get back to you with the best fuel card recommendations. Waste no time and let the experts work for you.