The Government has announced temporary changes to how Benefit-in-Kind (BIK) is charged on company cars and vans, after complaints that reforms introduced at the start of the year were leading to big increases in tax bills for those driving them.
The changes that took effect from January 1st saw a shift to a new BIK system based on the CO2 emissions of vehicles, in order to help incentivise a move to cleaner less polluting
cars and vans in fleets.
However, drivers of company provided vehicles complained that when they received their first salary payments of the year at the end of January, their tax bills had jumped, in some cases by hundreds of euro.
The changes hit a large number of the estimated 150,000 drivers of company cars and vans, many of whom have to drive for a living, who argued the reforms could have the opposite effect to what was planned.
While vehicle leasing firms reported that some workers were handing back their company cars, or buying them out, so that they could use them as a private car and claim mileage instead.
This evening though, in a surprise move, the Government said that in the Finance Bill 2023, it will temporarily introduce a relief on €10,000 on the Original Market Value (OMV) of some vehicles, upon which the tax is calculated.
The relief will apply to the OMV of cars in the categories of A-D.
It won’t, however, apply to the E category of most polluting vehicles.
“In effect, this means that, for the purposes of calculating BIK liability, employers may reduce the OMV by €10,000,” the Department of Finance said in a statement.
“This treatment will also apply to all vans and electric vehicles. For electric vehicles, the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 that is currently available for EVs, meaning that the total relief for 2023 will be €45,000.”
The upper limit in the highest mileage band, which is also used as part of the calculation of tax due, is also to be temporarily reduced by 4,000km to 48,001km.
The changes are to be applied retrospectively from January 1st, when the reforms were first introduced and will remain in place until the end of the year.
“The Government remains committed to the environmental rationale behind the current emissions-based vehicle Benefit-in-Kind regime which has been in operation since 1 January 2023,” said Minister for Finance, Michael McGrath.
“In the current inflationary context, however, we recognise the difficulty experienced by some people facing BIK increases under the new regime.”
“To that end, I am announcing that the Government is providing temporary changes to BIK for the current year which will help to mitigate some of the increases associated with the new emissions-based calculation.”
The measures will be introduced at the committee stage of the Finance Bill 2023, which will also introduce the tax measures announced last month by the Government to continue to
help families and businesses with the high cost of living.
These include restoration of the excise duty on petrol, diesel and marked gas oil by October 31 and the extension of the temporary 9.5% VAT rate for gas and electricity and the tourism and hospitality sector to October 31st.
It also includes the changes to the Temporary Business Energy Support Scheme.
A spokesperson for the Vehicle Leasing Association of Ireland said the temporary changes are a very welcome development.
He said the organisation is delighted that the Government has recognised its concerns.