See all Motoring AdviceThe taxation rules around company cars can be extraordinarily confusing, and making the wrong decision can cost you a good chunk of cash. Nevertheless, getting a company car — or a buy-your-own allowance — is still a tempting benefit of many jobs. Here, we try and guide you through the best and worst of having a company car.
To help us with this, we went straight to the expert — Michelle Dunne is Director, Tax Employer Solutions at Grant Thornton, and she was able to steer us through the company car tax minefield.
The first thing to remember is that the system changed – substantially - in 2023, with the government back-tracking on a previous policy of raising company car Benefit In Kind (BIK) charges for cars with combustion engines, while lowering them for electric cars. However, the move was seen as being too much, too soon, and so a temporary band-aid solution was implemented.
“January 2023 saw a shift in calculating company car BIK to a basis driven by vehicle CO2 emissions with a lower BIK rate being applied for lower emission-based cars,” explains Michelle. “Given a likely increase in BIK cost for employees driving certain petrol and diesel cars as a result of the change to a CO2 emission-based BIK regime, the government introduced a temporary reduction of €10k from the vehicle’s original market value (OMV) for the purposes of calculating BIK on company cars. This temporary relief is due to end this year on 31 December.”
So, it’s worth remembering that, come the end of this year (2025), BIK will be going up for cars with higher emissions. Does this mean that if you’re considering any sort of a company car or company car allowance, you should only be looking at electric cars, rather than petrol, diesel, or even hybrid?
Michelle reckons so: “An additional reduction of €35k from the vehicle’s OMV for the purposes of calculating BIK applies for fully electric vehicles, but not hybrids, for 2025. This amount will reduce to €20k for 2026 and €10k for 2027 and thereafter cease under the current legislative terms. The current €35K reduction adds up to €45k in total taking account of the temporary reduction for all vehicles, and that does make a fully electric employer-provided vehicle an attractive tax cost option.”
Does this mean that hybrids are out of the question? Not quite, says Michelle: “A hybrid falls under the same BIK charging provision as a normal petrol/diesel car; i.e. no additional reduction in OMV as noted for fully electric vehicles applies. However, the BIK charging system does offer lower BIK charging rates for lower CO2 emission-based vehicles so a hybrid vehicle may benefit from these lower BIK rates.”
The difference in the tax cost to an employee is pretty stark. Michelle gave us an example which compared three notional cars, all costing €60,000. One is electric, one is hybrid and one is petrol powered. The electric car will cost you just €145 in BIK tax each month, and the hybrid car a more substantial €487. The petrol car will cost you a whopping €680 per month in BIK. OK, so these are notional figures, but they are illustrative of the relative costs of electric versus hybrid versus petrol or diesel.
However, the big question is whether, if given the choice, you should take a car offered to you by the company or whether you should go for a paid allowance that lets you go out and choose your own car. There are swings and roundabouts to both, of course. The company-supplied car will be chosen from a limited list of cars that the fleet manager deems suitable, and from car makers or fleet suppliers with whom your employer has struck a deal, so you may not get a car you particularly like nor perhaps one that suits your off-duty needs. If you’re given an allowance, then you can just go out and choose whatever car you like, within certain boundaries.
However, according to Michelle, from a tax position, the choice is simple — go for the supplied car, not the allowance. Why so?
“The BIK rate charged assumes the employer funds all costs associated with the vehicle (insurance, servicing, petrol/charging tax etc) such that no further cost is levied on the employee over and above the BIK tax cost. Where a car allowance is provided by the employer, it is treated like any other salary type payment i.e. it is subject to income tax, USC and PRSI at source so, for example, a gross car allowance of €20,000 per annum would equate to €9,600 in the hands of the employee after tax (assuming c 52% tax rate). All loan, servicing, insurance, tax and any other operating costs will be incurred by the employee where a car allowance is paid,” said Michelle. By way of an example, a car allowance of €32k gross would need to be paid by the employer to the employee to fund a €60k five-year car loan, assuming €1,100 monthly repayments and reasonable operating and running costs of €2,500 per annum.”
So, the best advice is to take what car you’re offered by the company, make sure it’s electric and ignore the independent temptations of a company car allowance. Does that mean you’re condemned to driving a characterless electric box for the next three years? Not at all — there are lots of really cool new electric cars on the market. Having an electric company car has never made more financial sense, and now you can even have some fun and some style to go with that tax nous.