On 7th March 2023, the government approved the publication of the Finance Bill 2023. The Bill will give legislative effect to the taxation measures recently announced by the government to continue to assist families and businesses deal with high energy prices and cost of living challenges.
In addition, in a surprise move, the Minister for Finance Michael McGrath announced a temporary change in the Benefit-in-Kind regime for company provided vehicles in response to the reaction by individuals who have been significantly impacted by the changes that were introduced with effect from 1st January 2023 (as outlined below).
Finance Bill 2023 proposes to introduce the following temporary changes for the 2023 tax year:
Once Finance Bill 2023 has been enacted, these temporary measures will be retrospectively applied from 1 January 2023 and will remain in place until 31 December 2023.
This was to give as much notice as possible and to allow employers and employees to plan for same.
The changes were introduced as part of the government’s overall plan to address climate change with the intention being to incentivise employers to provide employees with low-emission cars.
These changes are having significant impacts on the net take-home pay for employees/directors who have the use of company vehicles, with the impact now being felt at a time when living costs have also risen significantly.
Finance Act 2021 further extended relief on a tapered basis from a BIK charge arising on electric vehicles provided to employees/directors in the period 1 January 2023 to 31 December 2025.
An employee/director is chargeable to tax on the BIK arising where, by reason of their employment, a vehicle is made available (without a transfer of ownership) to them, and the vehicle is available for their private use.
The BIK charge is equal to the cash equivalent of the use of the vehicle less any contributions made by the employee/director.
Exemptions and Reductions in amount liable to BIK
The following may reduce the amount liable to BIK:
With effect from 1 January 2023, how the cash equivalent of the use of employer-provided vehicles is calculated has changed as outlined below.
Prior to 1 January 2023
The cash equivalent of the use of a car was equal to 30% of the original market value (OMV) of the car reduced accordingly for business mileage travelled.
From 1 January 2023
The cash equivalent is determined by multiplying the OMV by the applicable percentage.
To determine the applicable percentage, the employer must:
Prior to 1 January 2023
An electric vehicle made available for an employee’s private use during the years 2019–2022 was fully exempt from BIK if the OMV was less than €50,000.
Where a full exemption did not apply, partial relief was granted by reducing the OMV by €50,000 when calculating the cash equivalent of the vehicle, and then reduced accordingly for annual business mileage travelled.
For an electric vehicle made available for an employee’s private use during the years 2023 to 2025, the cash equivalent will be calculated based on the actual OMV of the vehicle reduced by:
€20,000 in respect of vehicles made available in the 2024 year of assessment
This reduction applies irrespective of the actual OMV of the vehicle or when the vehicle was first provided to the employee.
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, taking into consideration CO2 emissions of the vehicle and annual business mileage.
From 1 January 2023 the cash equivalent of the use of a van increased from 5% to 8% of the OMV of the van.
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