Company car owners facing big benefit in kind bills

Tens of thousands of workers with company cars and vans are facing increased benefit-in-kind (BIK) bills totalling hundreds of euro more in their January pay cheques as a result of changes to how the tax is calculated.

The alterations to BIK are designed to encourage employers to make their vehicle fleets less CO2 emitting.

But some of the estimated 150,000 people impacted by the modifications argue it could have the opposite effect.

Under reforms announced in 2019 but which only came into force on January 1, the method of calculating BIK on company cars had a carbon emissions element introduced to it.

It means that vehicles that emit more CO2 are taxed at a higher rate of BIK, while those with lower emissions are charged less.

But those who have to drive for a living are annoyed and concerned by the significant jump in tax they are seeing being taken from their salaries in this month's payslips.

"For me, my BIK has trebled," said Ivor O'Sullivan, a medical rep who covers Northern Ireland and parts of Dublin and Leinster, leading him to drive hundreds of kilometres every day.

"It is a huge hit for me financially, it is hundreds of euros a month, thousands a year," he said.

Mr O'Sullivan said he feels drivers of company vehicles are being picked out and hit particularly hard by the extra green tax at a time when the cost of living is already rising.

"It is an absolute disaster, between the extra fuel costs and all the other costs that are in the world at the moment, it is a real blow for anybody that has got a company car ," he said.

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Vehicle leasing firms are reporting that some workers are seeking to hand back their company cars, or buy them out, so that they can use them as a private car and claim mileage instead.

"We had one customer this week who returned seven vehicles out of a total of 30, that's nearly 25% of their drivers have just said they are not willing to pay the new charges," said Dave Kavanagh, director of LeasePlan Ireland and deputy president of the Vehicle Leasing Association of Ireland.

"What they will now do is they will move to a car allowance, which by definition means they will buy an older higher polluting vehicle, which goes completely against the Government's climate action plan."

He added that the VLAI is trying to support the Government's climate goals, but called for joined up thinking between departments which he claimed are not aligned.

Businesses are also worried that there may be consequences for costs, with the director of one Dublin company that has a fleet of cars and vans telling RTÉ News that he fears his staff will now seek pay rises to offset the extra cost of the tax.

"This unnecessary new levy will severely hurt employees with their net take home pay," said Allan Shine, chief executive of Kildare Chamber of Commerce.

"The average employee will see a reduction in their pay packet of approximately €300 per month and that is not good news at all for those that drive the approximately 150,000 company cars in use on Irish roads countrywide," he said.

"One of our members with a fleet of 28 company cars and vans, has contacted me and is outraged that after investing over €400,000 in updating his car stock to electric vehicles, this decision will now result in a government levy on his employees of nearly €300 each monthly," he stated.

Under the changes, CO2 emissions along with the cash equivalent or original market value (OMV) of the vehicle and the kilometres travelled for business are now the variables which are taken into account in the calculations, with vehicles producing higher emissions paying more than those that emit lower amounts of CO2.

The cash equivalent of the use of a company van has also increased from 5% to 8% of the OMV of the van.

The preferential rate of BIK enjoyed by drivers of employer provided electric vehicles is also being phased out, beginning this year.

Previously if the OMV was up to €50,000, then the value for BIK purposes was reduced by the same amount, meaning the amount of tax payable was effectively nothing.

However, under the changes the level of reduction is being tapered back gradually over the next three years, to €35,000 this year, €20,000 next year and €10,000 in 2025.

By that point, electric vehicles will be fully liable to a BIK rate of 9% to 22.5%, lower than the higher rates applicable to CO2 emitting cars.

In a statement, the Department of Finance said company cars tend to travel more kilometres than the average passenger vehicle.

It also claimed that the company car fleet can be an important feeder into the domestic second hand car market.

"By making this change the Government is bringing the taxation system around company cars into step with other CO2-based motor taxes as well as the long-established CO2-based vehicle BIK regimes in other member states," it said.

It added that in order to provide as much advance warning as possible, the Minister for Finance had legislated in 2019 for the changes, but they did not commence until now.

"The rationale for the new structure is that the CO2-based discounts and surcharges will incentivise employers to provide employees with low-emission cars," it said.

Environmental campaigners have backed the reforms. Friends of the Earth Ireland said there is never a popular time to increase taxes, but these changes had been long signalled.

"We are in a climate emergency," said its director, Oisin Coghlan.

"We need to radically reduce emissions in all sectors and the bottom line is this change means the less polluting a company car the less tax you'll pay," he said.

"I think over time it will be in the interests of employees and companies to have more electric cars and lower emissions cars and that will over time reduce the pollution of our company car fleet," he added.

However, leasing firms and those using company cars have countered that argument by saying electric vehicle battery technology and the charging infrastructure are not sufficiently advanced to make such vehicles a viable alternative for many workers.

While shortages of electric and hybrid vehicles due to supply chain difficulties mean even if businesses were able to afford to update their fleets, they could not get them.

They also claim that the design of the new system is such that it incentivises people to drive their polluting vehicles for longer than needed because the more kilometres driven the lower the rate of BIK charged is.

"We are in a unique situation where the availability of not just Electric Vehicles but all vehicles is extremely low due to supply chain issues and a global chip shortage," said Mr Shine.

"We are one of the biggest business organisations in the country and the largest in the entire Mid-East region and we are calling on the Government to get rid of this pointless BIK tax on electric vehicles, it makes no sense at all during a time of climate crisis," he added.