In line with the Government’s Climate Action Plan, from 1 January 2023 on benefit in kind (“BIK”) on company cars is to be calculated with reference to CO2 emissions.

To date, the calculation of the BIK was based on 30% of the original market value (“OMV”) of the car, with further tapering relief based on business mileage that could reduce the percentage to as low as 6%.

The new changes to take effect from 2023 are to apply to all cars (including electric vehicles), whether the car is first acquired and made available for use in 2023 or whether it was made available in earlier years.

The BIK cash equivalent on the use of a company car will be calculated based on the OMV and both the business mileage and the vehicle’s CO2 emissions using the following tables below:
 

The cash equivalent is calculated by multiplying the OMV of the car by the appropriate percentage in Table 1 after determining the vehicle category based on the car’s CO2 emissions.

Electric vehicles

Finance Act 2021 extended the favourable BIK regime for certain electric vehicles made available to employees in the period from 1 January 2023 to 31 December 2025. The relief from the BIK charge arising during this period applies on a tapered basis.

For an electric vehicle made available for an employee’s private use during the years 2023 – 2025, the cash equivalent will be calculated based on the actual OMV of the vehicle reduced by:

• €35,000 in respect of vehicles made available in the 2023 year of assessment;
• €20,000 in respect of vehicles made available in the 2024 year of assessment; and
• €10,000 in respect of vehicles made available in the 2025 year of assessment.
If the reduction reduces the OMV to nil, a BIK charge will not arise. Any portion of OMV remaining after the reduction is applied is chargeable to BIK at the prescribed rates and from 1 January 2023 will be calculated by reference to the rules above.

Example

An employee has the use of an electric company car on 1 January 2023. The OMV of the car is €60,000.

Per the manufacturer, the car produces 0g/km in CO₂ emissions. The actual business kilometres in the year were 24,000 kilometres. 0g/km in CO₂ emissions puts the car in vehicle Category A.

The below examples details the effect of the tapering relief and change in BIK charges for employees over the next 4 years:
 

Company vans

From 1 January 2023, the percentage used in the calculation of the cash equivalent of the use of a van will increase from 5% to 8%.
Implications.

These changes will have the effect of increasing costs for both employees and employers where the company car is in the higher CO2 emission brackets and for all taxable company vans.

Employers will need to review their company vehicle fleet and ensure these changes are implemented in time for the first payroll period in 2023 onwards.

They should also communicate these changes to their employees before the end of the year.