BIK on Company Cars
When an employee receives a company car, which is available for his private use, a taxable BIK arises. In order to avoid the countless arguments which would arise regarding the value of this benefit, the legislation adopts a simple approach to valuing the benefit of having a company car available for private use.
A company car which is made available to any of the following persons shall be deemed to be available to the employee for private use:
References to the employee’s family or household refer to the employee’s spouse, children and their spouses, parents, dependants, servants and guests.
The BIK on the private use of a company car is calculated as being 30% of the original market value (OMV) of the car, not the current market value of the car. The OMV of a car is calculated as the list price for the car when it was first sold in the State inclusive of VAT and Vehicle Registration Tax (VRT). However, the OMV of a car is not necessarily based on what a company actually pays for a car, even where it is purchased new, but on the price, which the car might reasonably have been expected to fetch:
1. If sold in the State singly
2. In a retail sale
3. In the open market
4. Immediately before the date of its first registration in the State, or elsewhere
In a situation where a large discount was obtained (e.g. fleet purchase), or the discount cannot be determined (e.g. trade-in situation), or the car was purchased second hand, any claim in respect of discounts are restricted to the amount of any discount obtainable in a single retail sale in the open market, subject to a maximum of 10% discount. This means that even where a company purchases a large number of cars at a special discount price, the basis for the BIK charge is not what the company paid for the cars, but the OMV (the list price less any discount normally available for a single purchase). Where a discount was actually received on the purchase of the car and such a discount would have been available on a single retail sale, the OMV can be reduced accordingly.
If a car is purchased outside of the State, the OMV is calculated on the basis of the OMV for that same model car when purchased new within the State at the date of registration of the car being supplied. If a car is supplied with extras (e.g. sat-nav, parking assist, heated seats, cruise control, etc.) this must be reflected in the OMV for a similar model supplied with these extras.
In calculating the value of a BIK, it doesn’t matter whether the car was purchased new or second-hand by the employer, or whether it is owned outright or leased, as the value of the BIK is always calculated on the OMV of the car.
Definition of "Car"
A car means any mechanically propelled road vehicle designed, constructed or adapted for the carriage of the driver or the driver and one or more other persons, other than:
1. A motor-cycle, the weight of which is less than 410 kilograms, or
2. A van (as defined), or
3. A vehicle not commonly used as a private vehicle and unsuitable to be so used.
This definition excludes the average motorcycle, vans, trucks, buses, limousines, hearses, emergency response vehicles, etc. but includes many 4 wheel drive vehicles i.e. jeeps and crew cabs.
Rate of BIK on Annual Business Travel
The notional value of a BIK arising on the private use of a company car should be calculated as 30% of the OMV of the car. However, where the annual business travel exceeds certain thresholds, the 30% rate can be reduced to 24%, 18%, 12% or 6% of the OMV of the car, based on the annual business travel. The following is a list of the current BIK rates and thresholds:
|Annual Business Travel (kms)
||% of OMV
|Up to 24,000||30%|
|In excess of 24,000 but not exceeding 32,000||24%|
|In excess of 32,000 but not exceeding 40,000||18%|
|In excess of 40,000 but not exceeding 48,000||12%|
|In excess of 48,000||6%|
Revenue will not accept that the annual private travel for an individual is less than 8,000 kms, unless a compelling argument can be made to support this. This does not mean an employer should automatically assume every employee does 8,000 private kilometres per year, hence all other travel in the car is business travel.
Whenever an employee wants to claim a reduction in the value of his BIK because his annual business travel exceeds 24,000 kms, a log book (or other record) must be kept in which all business travel is recorded to prove that an employee is entitled to a reduced rate of BIK. This is an area in which Revenue focus on when carrying out BIK compliance checks and it often arises that many employers do not keep adequate records to verify the amount of business travel. In such cases, Revenue recalculate the value of the BIK based on 30% of the OMV of the car which results in the employer being liable for any underpayments of Income tax, PRSI and USC.
Peter works for ABC Ltd. He is provided with a company car which has an OMV of €17,500. The car is 4 years old and is now worth €8,000. He drives 45,600 kilometres per year of which 11,200 kilometres are private. Calculate the notional value of the car.
Total annual travel 45,600 km
Private travel (11,200) km
Business travel 34,400 km
From the table above, where the annual business travel is between 32,000 and 40,000 kilometres, the annual BIK is calculated as 18% of the OMV, as follows:
OMV of €17,500 x 18% = €3,150
It should be noted that the appropriate percentage (30%, 24%, 18%, 12%, or 6%) as applied to the OMV of the car based on the annual business travel represents the full BIK charge on a company car. There is no additional BIK charge where the employer pays the road tax, insurance, repairs or where the employer pays for the fuel, even where the employee uses the fuel on non-business journeys.
The provision of a fuel card by an employer to an employee who drives a company car will not give rise to a taxable BIK for the employee, assuming it is only used to purchase fuel for the employee’s company car. The rate of BIK applied to the company car covers the cost of the fuel for that car.
Where an employer provides a fuel card to an employee in respect of his private car, the full amount spent on the fuel is a taxable BIK where the employee does not drive the car on company business.
Where an employer provides a fuel card to an employee who drives his private car on business journeys, and the amount spent on the fuel card is less than or equal to the amount the employer could have paid in Civil Service travel rates in respect of the business travel, no tax liability will arise. In this scenario, records should be retained verifying the business travel.
Where an employer pays toll charges for a company car or a private car on a business journey, this does not give rise to a taxable BIK for the employee driving the car. However, where the employer pays toll charges for a company car or a private car on a private journey (e.g. commuting to and from the normal place of work), the amount paid by the employer gives rise to a taxable BIK for the employee driving the car.