Employers Guide to Benefit-in-kind – Private Use of Company Cars

Considering getting a Company Car? Here’s what you need to know.

The use of company cars is a common practice. In the EU, business registrations account for roughly 50% of all car sales in the EU, largely due to taxation rules. Naturally taxation rules change from one country to another and there are a few things you will need to know if you are considering getting a company car in Ireland.

In general, if a company car is available for an employee’s private use then the employee is chargeable to PAYE and PRSI in respect of that use. It is important to note that travelling to and from work in a company car is considered private use.

The notional pay to which PAYE and PRSI must be applied is determined by reference to the “cash equivalent” of the private use of the company car. The cash equivalent is determined by applying a percentage based on business kilometres to the “Original Market Value” (OMV) of the vehicle supplied (whether the vehicle is owned, acquired new or second-hand or leased by the employer).

Cars in “car-pools”

There will not be a charge to tax in respect of a car which is in a “car-pool”. A car can be considered as being in a car-pool if:

  • The car is made available to, and is actually used by, more than one employee and is not ordinarily used by one employee to the exclusion of the others.
  • Any private use of the car by the employees is merely related to business use.
  • Employees do not keep the car for personal use overnight.

Chauffeur driven cars

In the case of chauffeur driven cars two separate charges arise:

  • A benefit-in-kind charge in respect of the provision of the car.
  • A benefit-in-kind charge in respect of the expenses incurred by the employer in the provision of a chauffeur.

Charge for the chauffeur benefit – The total expense incurred by the employer in the provision of the chauffeur (e.g. chauffeur’s salary) is chargeable less any amount made good by the employee.

 

Calculation of “cash equivalent” in three steps:

  • Ascertain the Original Market Value (OMV) of the car.
  • Ascertain the Business Kilometres for the year and calculate the “cash equivalent” using the appropriate percentage.
  • Deduct amounts made good by Employee to the Employer

For example:

An employee has the use of a company Car with an original market value of €25,000. He/she travels 19,000 business kilometres annually and contributes €1,000 per annum directly to the employer for the private use of the Car. In addition, the employee pays for his/her own private fuel.

The notional pay is calculated as follows:

25,000  x  30%                        =                      €7,500

Less amount made good to employer     –    (€1,000)

Notional Pay                          =                       €6,500

Alternative Basis for certain employees with low business kilometres

In the case of certain employees whose annual business travel does not exceed 24,140 kilometres, the cash equivalent of 30% of OMV may be reduced by 20% giving an effective cash equivalent of 24% of OMV.

This alternative basis is available where the following conditions are met.

The employee:

  • Works an average of at least 20 hours per week.
  • Travels at least 8,047 business kilometres per annum on the employer’s business.
  • Spends at least 70% of his or her working time away from the employer’s premises.
  • Retains a log book detailing business kilometres, business transacted, business time travelled and date of journey, and the log book is certified by the employer as being correct.

Private use of Company Cars by Employees in the Motor Industry

If the employees are working in the motor industry, special arrangements have to be put in place related to frequent changes of company cars (changes at periods of less than 1 month). This arrangement does not apply to employees who have exclusive use of a specific car(s) for a predictable period(s) in excess of 1 month.

This arrangement applies to the following employees:

  • Employees in the retail motor trade.
  • Employees in the short-term car hire trade.
  • Other employees in the motor trade.

The employers within the arrangement are:

  • Motor retailers who are engaged in selling used cars only.
  • Franchised motor retailers who are engaged in selling both new and used cars.
  • Short-term car hire providers.
  • Motor distributors and car leasing.

 

When the Company Car is not available for a full year

Where a car is not available for part of a year, the business kilometric thresholds and the percentage cash equivalents used should be calculated as follows:

(number of days in the tax year car is available for private use) / 365

Or as percentage:

(number of days in the tax year car is available for private use) x 100) / 365

In case the change of the car happens during the tax year, the notional pay is calculated the same as when the company car is not available for the full year.

End of Year Adjustment

Employers need to estimate the business kilometres during the course of the year and the resultant estimated notional pay should be added to the employee’s money wages or salary and PAYE and PRSI calculated on the aggregate amount.

Car Allowances

In case of the employee surrendering the company car and receiving a round sum car allowance instead, the sum is liable to PAYE and PRSI.

If the employer reimburses the expense of business kilometres whereby an employee has used their personal car, this reimbursement is not liable to PAYE and PRSI.

If you would like to find out more or you need assistance with your benefit-in-kind, contact Richard Maloney today for a consultation at