Benefit in Kind.

Benefit in Kind (BIK) is a concept that often comes up when discussing company cars in Ireland. For businesses and employees alike, it’s essential to understand the features of BIK, the associated costs, and how it compares to owning a car privately. In this blog, we’ll explore these aspects to help you make informed decisions about your vehicle options.

What is Benefit in Kind (BIK)?

BIK refers to a non-cash benefit provided by employers to employees, which is considered taxable income. In the context of company cars, the value of the car made available for personal use is taxed as a benefit. Employees who have access to a company car for personal use are required to pay tax on the value of that benefit.

BIK taxation on company cars is calculated as a percentage of the car’s original market value (OMV), with the percentage determined by the car’s CO2 emissions band and the annual business mileage.

Key Features of BIK for Company Cars

1. Taxable Value Based on CO2 Emissions
   • BIK rates range from 9% to 37.5% of the car’s OMV, depending on its CO2 emissions.
   • Lower-emission vehicles attract lower BIK rates, incentivising environmentally friendly choices.
2. Business Mileage Reductions
   • The annual mileage driven for business purposes can reduce the BIK rate.
   • For example, higher business mileage may lower the applicable percentage, reducing the tax burden.
3. Electric Vehicles (EVs)
   • EVs have significantly lower BIK rates compared to internal combustion engine (ICE) vehicles.
   • In Ireland, certain tax exemptions and discounts apply to EVs, making them a cost-effective option for company cars.
4. Personal Use Consideration
   • BIK applies only to the proportion of time the car is available for personal use. Vehicles used exclusively for business purposes are not subject to BIK.

Likely Costs of BIK

Let’s break down the likely costs of BIK using a popular example:

• Car Type: Diesel Volkswagen Golf with an OMV of €40,000.
• CO2 Emissions Band: 131-150g/km (24% BIK rate).
• Annual Business Mileage: 20,000 km.

BIK Calculation:

• Taxable value = OMV x BIK rate = €40,000 x 24% = €9,600.
• Annual tax liability (at 40% income tax rate) = €9,600 x 40% = €3,840.

For an EV with an OMV of €40,000 and emissions of 0g/km (9% BIK rate):

• Taxable value = €40,000 x 9% = €3,600.
• Annual tax liability = €3,600 x 40% = €1,440.

As seen, the type of vehicle and its emissions have a significant impact on BIK costs.

Comparing BIK with Owning a Car Privately

Advantages of BIK

1. Convenience
   • Employees don’t need to worry about purchasing, insuring, or maintaining the vehicle; these are typically handled by the employer.
2. Predictable Costs
   • Tax liability is a fixed percentage of the vehicle’s OMV, making it easier to budget.
3. Access to Newer Vehicles
   • Employers often provide newer, more efficient vehicles, offering reliability and lower fuel costs.

Disadvantages of BIK

1. Tax Implications
   • Employees face an additional tax liability, which may be substantial depending on the vehicle’s value and emissions.
2. Limited Choice
   • Employees may have limited input into the vehicle selection.

Advantages of Private Ownership

1. Ownership Freedom
   • Private ownership allows individuals to choose and fully own their vehicle without tax considerations on personal use.
2. Potential Long-Term Savings
   • Depending on the vehicle and financing options, private ownership might be more cost-effective over time.

Disadvantages of Private Ownership

1. Upfront Costs
   • Buying a car privately requires a significant upfront investment or financing.
2. Ongoing Expenses
   • Maintenance, insurance, and depreciation are entirely the owner’s responsibility.

Making the Right Choice

Deciding between a company car (BIK) and private ownership comes down to your personal circumstances, financial situation, and driving needs. If you’re an employee offered a low-emission company car or EV, the tax advantages can be substantial. For those who prefer full control over their vehicle choice and usage, private ownership might be more appealing.

For businesses, offering company cars can be an excellent employee perk, especially when opting for low-emission or EV options to minimise tax impacts.

How Vendor Finance Can Help

At Vendor Finance, we specialise in offering tailored finance solutions for both personal and business needs. Whether you’re considering a company car or purchasing privately, we can help you find the best financing options to suit your requirements.

Contact us today or visit vendorfinance.ie to learn more about how we can assist you in navigating the world of vehicle finance and Benefit in Kind taxation.