Taxation of company vehicles

The provision of a company vehicle to an employee is of dubious benefit, due to the taxation implications.

For the company, deductibility is dependant on business use, so if a vehicle is largely used by an employee for personal purposes, the tax deduction is reduced accordingly. Furthermore, even the business deductibility is restricted for “higher value” vehicles, ie those costing more than €24,000.

For the employee, he/she will be assessed to benefit in kind on the deemed personal use of the vehicle. Unless the employee does high mileage, the rate of assessment is 30% of the original market value of the vehicle when new. So for instance if a company provides a second-hand car to an employee which cost the company €15,000 but which was €30,000 when new, the employee will be assessed to 30% of €9,000 as deemed extra income and taxed on it accordingly. Where higher business mileage is done, the 30% rate reduces as follows:

Business km per annum:

To get around the penal BIK system, companies sometimes provide car-derived vans to their employees, as the BIK rate is the case of commercial vehicles is only 5% rather than a potential 30%. However in recent years this practice was extended to such vehicles as Land Rover Discovery and BMW vehicles, which the distributors managed to have taxed as commercial vehicles for VRT purposes. Dealers then assured clients/taxpayers that such vehicles were approved by Revenue as commercial for tax purposes and taxpayers then self-assessed on the basis of the 5% BIK rate.

Income tax legislation differs from VRT legislation regarding the interpretation of what constitutes a commercial vehicle. It is not sufficient for the vehicle to have been accepted by the VRT assessors as commercial, but the vehicle must also meet the criteria set out in the income tax legislation, including the requirements that there should be no rear windows, and no provision for seating in the back of the vehicle.

As a result, the situation can arise whereby one branch of Revenue accepts that a vehicle is a commercial one, while another branch regards it as a private car, subject to the penal BIK regime.

A recent development is that Revenue are auditing companies which provide company vehicles and are assessing the companies to back-tax plus interest and penalties.

Company bookkeepers may be unaware that any benefit provided to an employee by a company must be taxed under the PAYE system. The tax should be remitted with the monthly or quarterly P30 return. Failure to do so will result in interest charges and penalties for non-compliance.