121 Benefit of use of car

Summary

This section charges to income tax the benefit to directors and employees derived from the private use of motorcars provided by their employers. The charge to tax is based on “cash equivalent” of that benefit derived from the use of the car. The “cash equivalent” is computed as a specified percentage of the original market value of the car.

Prior to 1 January 2023, the cash equivalent of the use of a car was set at 30 per cent.

Finance Act 2019 changes, which came into operation on 1 January 2023, provide that the cash equivalent of the use of a car is determined based on the cars CO₂ emissions as well as business mileage.

Finance Act 2023 provided for a temporary reduction of €10,000 in the original market value of cars in category A, B, C and D, for the purpose of determining the cash equivalent. This temporary reduction has since been extended and now applies from 1 January 2023 up to 31 December 2025. A further reduction in the original market value used to calculate the benefit in kind arising on employer provided electric cars is also provided for and applies from 1 January 2023 to 31 December 2027.

Relief known as “tapering relief” applies where business miles exceed 26,000 kilometres per year. This relief reduces the cash equivalent of the original market value with the amount of relief dependant on the business mileage and vehicle category as set out in Table A in subsection (4A).

As an alternative to tapering relief, a director or employee may opt to avail of a relief which will reduce the cash equivalent of the benefit of the car by 20 per cent provided he/she —

• travels at least 8,000 business kilometres per year,
• spends at least 70 per cent of his/her time away from the employer’s premises,
• works at least 20 hours per week, and
• keeps a detailed logbook.

Cars included in car pool arrangements are outside the scope of the section.

[Changes made by section 6 of the Finance (No. 2) Act 2008 provide for a new CO₂ based system of calculation of benefit in kind in respect of company cars provided for employees. These changes will only be effective from a date which will be determined by a Ministerial Order.]

Details

Definitions and construction

(1)(a) “business mileage for a year of assessment” is the total number of whole kilometres travelled by a person in a car or cars in the course of business use. The change to using kilometres rather than miles is effective for years of assessment 2014 and subsequent years.

“business use” is travelling in a car which a person is necessarily obliged to do in the performance of the duties of his/her employment. This is similar to the normal Schedule E expenses test (section 114) and it follows that “home to office” travel does not constitute “business use”.

“car” means any mechanically propelled road vehicle constructed or adapted for the carriage of the driver alone or the driver and one or more passengers, but does not include a motor-cycle, a van (within the meaning of section 121A), or a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used.

“employment” is an office or employment the emoluments (within the meaning of section 113) of which are within the charge to tax. Employment, therefore, includes employees and directors chargeable to tax under Case III of Schedule D.

“electric vehicle” means a vehicle that derives its motive power exclusively from an electric motor.

“motor cycle” means a mechanically propelled vehicle with less than 4 wheels and an unladen weight not exceeding 410 kilograms.

“private use” is use other than business use.

“relevant log book” is a record maintained on a daily basis of a person’s business use of a car for a tax year which —

• contains relevant details of distances travelled, nature and location of business transacted, and the amount of time spent away from the employer’s place of business, and
• is certified by the employer as being, to the best of employer’s belief, a true and accurate account.

(1)(b)(i)(I) A car made available to an employee by reason of his/her employment is treated as available for private use unless the terms on which it is made available prohibit such use and no such use is in fact made of the car.

(1)(b)(i)(II) A car made available to an employee by his/her employer or by a person connected with the employer is treated as made available by reason of his/her employment unless the employer is an individual and it can be shown that the car was made available in the normal course of his/her domestic, family or personal relationships. If, for example, a self-employed individual employs his/her child and the child is provided with a car purely for private purposes and the car is not regarded as a business asset for the purpose of claiming capital allowances or no expenses relating to the car are claimed as deductions in computing the individual’s taxable profits, then, the car is not regarded as made available to the child by reason of his/her employment and no charge to tax arises.

(1)(b)(i)(III) A car is treated as available for a person’s private use if it is available to a member or members of his/her family or household.

(1)(b)(i)(IV) References to a person’s family or household are references to his/her spouse, his/her civil partner, sons and daughters and their spouses or civil partners, his/her parents and his/her servants, dependants and guests.

(1)(b)(ii) Costs in relation to a car which are borne by a person connected with the employer are treated as having been incurred by the employer.

(1)(b)(iii) The original market value of a car is the price (including any customs duty, excise duty and value-added tax) which it might reasonably be expected to fetch if sold in the open market when new in the State in a single retail sale.

Application

(2)(a) The section applies in the case of a person in an employment (that is, a director or employee) for any year of assessment in relation to which a car is made available to the person, by reason of the employment, for his/her private use without any transfer to the person of the ownership of the car.

The charge to tax

(2)(b) In relation to such a car —

• (2)(b)(i) the general benefits in kind charge (contained in Chapter 3 of this Part) does not apply for that year in relation to the expense incurred in connection with the provision of the car, and
• (2)(b)(ii) in place of that charge, the “cash equivalent” of the benefit of the car is charged to tax as an emolument of the employment by reason of which the car is made available, subject to a deduction being made from the cash equivalent in respect of any amount which the employee is required to contribute, and actually contributes, in respect of the costs of providing or running the car. Excluded from this deduction are amounts which are allowed to be deducted in computing the cash equivalent under subsection (3)(a).

(2)(b)(iii) Where the car made available to the employee is an electric vehicle and is provided during the period 1 January 2018 to 31 December 2018, no amount shall be treated as emoluments.

(2)(b)(iv) Where an electric vehicle is made available to an employee during the period 1 January 2019 to 31 December 2022 and the original market value of the car does not exceed €50,000, no amount shall be treated as emoluments.

(2)(b)(v) Where an electric vehicle is made available to an employee during the period 1 January 2019 to 31 December 2020 is an electric vehicle:

• the original market value of the car exceeds €50,000, and
• the car was first made available to the employee during the period 10 October 2017 to 9 October 2018

no amount shall be treated as emoluments.

(2)(b)(vi) Where an electric vehicle is made available during the period 1 January 2019 to 31 December 2022 and the original market value of the car exceeds €50,000, the cash equivalent of the car shall be computed on the original market value of the car reduced by €50,000.

Cash equivalent of benefit of car

(3)(a) Up to 31 December 2022 cash equivalent of the benefit of a car for a year of assessment was flat rate of 30 per cent of the original market value of the car.

(3)(b) Where a car is available to a person for part only of a year of assessment, the cash equivalent of the benefit is ascertained by apportionment on a time basis. This provision operates where a person —

• first obtains the use of a company car during the course of a year,
• ceases to have the use of a company car during the course of a year, or
• changes cars during the course of a year.

(3)(c) From 1 January 2023, the charge to BIK will be calculated with reference to the emissions-based criteria under subsection (4A).

Tapering relief for years of assessment prior to 2023

(4) Tapering relief is available for employees with high business mileage, that is, business mileage in excess of 24,000 kilometres in a year of assessment. In relation to such employees, the cash equivalent of the benefit of the car for that year, instead of being the amount ascertained under subsection (3), is the percentage of the amount applicable to the business mileage as set out in the Table below.

Where a car is only available for part of the year the table above is to be revised so that the figure of 24,000 is replaced using a formula –

Where A is the number of days the car is available in the year, and each of the figures in the Table to this subsection are reduced in the same proportion to determine the cash equivalent of the benefit.

(4)(d) From 1 January 2023, the charge to BIK is calculated with reference to the emissions-based criteria under subsection (4A).

Emissions-based calculations

(4A) From 1 January 2023, the method of calculating the charge to BIK under subsection (4) shall cease to apply for all vehicles.

(4A)(a) The cash equivalent of the benefit of a car shall be determined by the formula:

where -

A is a percentage, based on the vehicle categories set out in Table B below and the business kilometres travelled as set out in Table A below.

(4A)(a)(a) This paragraph provides for a reduction in the original market value used to calculate the benefit in kind arising on employer provided electric cars made available in the period from 1 January 2023 to 31 December 2027.

A reduction of €10,000 in the original market value applies to cars in category A, B, C, and D, for the 2023, 2024 and 2025 years of assessment. This applies to electric cars in addition to the reduction of €35,000 provided for in paragraph (aa).

Any excess amount, after this reduction is applied, is chargeable to benefit in kind at the prescribed rate.

(4A)(b) This paragraph provides for the appropriate percentage to be applied to the original market value of the car.

(4A)(ba) In Table A, the lower limit of “52,001” in column (1) is reduced to “48,001”, and the upper limit of “52,000” in column (2) is reduced to “48,000” for the 2023, 2024 and 2025 years of assessment.

(4A)(c) Where a car is available to a person for part only of a year of assessment, the cash equivalent of the benefit is ascertained by apportionment on a time basis. This provision operates where a person –

• first obtains the use of a company car during the course of a year,
• ceases to have the use of a company car during the course of a year, or
• changes cars during the course of a year.

(4A)(d) This paragraph clarifies that the categories in Table B refer to the CO₂ emission levels of the car, as determined by virtue of section 130 of Finance Act 1992.

(5)(a) Where a person, in any year of assessment –

• spends 70 per cent or more of their time performing their duties away from their place of employment, and
• their business mileage exceeds 8,000 kilometres,

that person can elect, in writing to the inspector, to have the cash equivalent of the car reduced to 80 per cent of the amount ascertained under subsection (3), which is subject to subsection (4A) for the year of assessment 2023 and subsequent years.

(5)(b) Where an individual makes an election under paragraph (a) for a year of assessment they must, when requested in writing by the inspector, provide a completed log book for that year within 30 days of the request.

(5)(c) This subsection will not apply to a year of assessment where a person fails to provide the requested logbook within 30 days, or where the time spent performing the duties of their employment is less than 20 hours a week on average.

(5)(d) This paragraph provides for the right to appeal to apply for the purpose of this subsection as it does for the purposes of subsection (7).

(5)(e) Where a person makes an election under paragraph (a) for a year of assessment, they must retain the logbook for that year for a period of 6 years, unless a shorter period of time is authorised in writing by the Inspector.

(6)(a) Where a person is chargeable to tax under this section, the person chargeable to tax in respect of the amount so chargeable must deliver in writing to the inspector, not later than 30 days after the end of that year of assessment, particulars of the car, of its original market value and of the business mileage and private mileage for that year of assessment.

(6)(b) Where the person does not supply the required particulars or the inspector is not satisfied with the particulars delivered, the inspector may, for the purpose of calculating the amount of tax to which that person is chargeable, estimate the original market value or business mileage or private mileage to the best of his/her judgement. For the purposes of estimating the business mileage, the inspector may, in the absence of evidence to the contrary, estimate the business mileage by deducting from the total mileage 8,000 kilometres in respect of private use.

(6)(d) Any such estimates may be amended by the Appeal Commissioners or the Circuit Court on the hearing or rehearing of an appeal against an assessment to income tax raised in respect of the employment in the performance of the duties of which the business mileage was travelled.

Car pools

(7)(a) An exemption from the benefit in kind charge applies where an inspector is satisfied (whether on a claim being made or otherwise) that a car has for any year been included in a car pool for the use of one or more employees. It is to be noted that this exemption does not reinstate a charge to tax under the general benefit in kind charging provision in Chapter 3 of this Part.

(7)(b) A car is treated as part of a car pool where —

• the car is available to, and used by, more than one employee, and is made available to them by reason of their employment and is not ordinarily used by any one employee to the exclusion of the others,
• any private use of the car by any employee is merely incidental to its business use, and
• the car is not normally kept on or near the residence of any of the employees unless it is kept on premises occupied by the provider of the car.

(7)(c) Where these conditions are met, the car is treated for the year in question as not having been available for the private use of any of the employees. Consequently, none of the employees are chargeable to tax for that year in respect of the car.

(7)(d) One or more employees using a car during the course of the tax year, or their employer, may claim that the car is a “pooled” car.

(7)(e) Where an employer is aggrieved by a decision of the inspector that a car has not been included in a car pool may appeal the decision to the Appeal Commissioners, in accordance with section 949I, within the period of 2 months after the date of the notice of that decision.

Relevant Date: Finance Act 2024