In this short article, Nikki Johns provides a brief explanation to help employers understand how Benefit-in-Kind applies to the provision of company cars for their employees.
If you provide your employee with a company car which is available for their private use, this is considered to be a non-cash benefit and is therefore subject to PAYE, PRSI, and USC under Revenue’s Benefit-in-Kind rules.
What is ‘private use’ of a company car?
Travel to and from work is generally considered private use, so if your employee keeps the company car at their home it will generally be taxable as a Benefit-in-Kind (BIK).
How do you calculate the Benefit-in-Kind on a company car?
In order to deduct the correct taxes from your employee’s wages, you need to calculate the ‘cash equivalent’ for the car.
To begin with, you will need to know the Original Market Value (OMV) of the car. This is the cost of the car, in Ireland, prior to its first registration. This value includes VAT and VRT. Even if the car was purchased second-hand by you, the OMV of the car when new must be used.
Once you have the OMV of the car, the cash equivalent is calculated by applying a percentage to the OMV. The applicable percentage depends on how many business kilometres your employee drives per year. This can be estimated but should be reviewed regularly to ensure continued accuracy. At the time of writing, the relevant percentages set out on the Revenue website are as follows:
The calculation should only take into account the kilometres driven for business. If an employee does not have proof of how many private kilometres they drive, you must assume that 8,000km per year are for private purposes.
Once you have determined the relevant percentage, you must apply this percentage to the OMV to give the relevant cash equivalent. This is amount that will be subject to PAYE, USC, and PRSI. If an employee contributes money towards the running costs of the car, you may deduct the amount of their contributions from the cash equivalent total.
Most payroll software will let you to enter the relevant BIK details and calculate the correct taxation.
Are any company cars exempt from BIK?
Car-pool cars and electric vehicles (not including hybrid cars) are exempt from BIK.
How does the Covid-19 pandemic affect BIK on company cars?
Due to the Covid-19 pandemic, special rules are in place to deal with situations where an employer takes back possession of a company car, or an employee is no longer using the car. For more information, check out our blog on Benefits-in-Kind and Covid-19: What You Need to Know .
What other employee benefits are considered to be a Benefit-in-Kind?
Various non-cash benefits are considered to be Benefits-in-Kind including things like payment of certain course fees and professional subscriptions, medical insurance premiums, and supply of office and computer equipment to name but a few. Special rules apply to some of these benefits. Elsewhere on our blog, you will find answers to frequently asked questions about Benefit-in-Kind while further information on the tax considerations relating to private use of company cars can be found on the Revenue website.
As GroForth, we understand the pressure employers experience when it comes to keeping up to date with the various rules and regulations that apply to different types of non-cash benefits. If you need help calculating Benefit-in-Kind and/or operating your payroll, we would be happy to look after these time-consuming tasks on your behalf. Check out our payroll services page or contact our CEO Sarah Daly to discuss your specific requirements.