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Some better news for the taxation of company cars backdated to 1 January 2023

Tom Maguire discusses the recent changes to the taxation of company cars in his latest Business Post column

I confess to being passionate about cars and therefore any changes on taxing them always gets my attention. The taxation of company cars changed from 1 January 2023, and they changed again recently.

The January 2023 method looks at, among other things, the car’s CO2 emissions. In general, subject to reductions for business mileage, reductions for electric vehicles and certain other exclusions an employee will be taxable on what’s known as the “cash equivalent” of the company car. That’s a tax term based on a percentage of the car’s “Original Market Value” (OMV). Revenue guidance explains OMV as the price which the car might reasonably have been expected to fetch if sold singly in a retail sale immediately before the date of its first registration. The percentage I mentioned earlier depends on business mileage and emissions so the more emissions a car produces the more the benefit in kind (BIK) charge to income tax that will apply.

The Department of Finance’s recent press release noted that while “the move to a CO2 based Benefit-in-Kind system, which incentivises the use of Electric Vehicles and lower emission cars, is an important element of achieving our climate targets, a significant number of employees with vehicles in the typical emissions range experienced large increases in their income tax liabilities since the start of 2023”. In order to address this, the press release said the Minister would introduce a relief of €10,000 to be applied to the Original Market Value of cars in Category A-D in order to reduce the amount of Benefit-in-Kind payable. This doesn’t apply to cars in Category E being those with the highest emission.

This means that, for the purposes of calculating a BIK liability, employers may reduce the OMV by €10,000. This treatment will also apply to all vans as well as electric vehicles. For electric vehicles the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 currently available for them. This means that the total relief for EVs in 2023 will be €45,000. In addition, there were changes to reductions for business mileage. These temporary measures will be retrospectively applied from 1 January 2023 and are to remain in place until 31 December 2023.

So somewhat better news if you have a company car with the cost-of-living crisis being the background to the changes. All of this law change made me recall a pre-2023 case that previously came before the Tax Appeals Commission (TAC and a form of tax court). Although car-related it can be used as an indicator regarding the level of back-up required whenever you’re making a tax-reduction claim. I’ll get into that in a second but the first question to be asked is ‘what is a car for BIK purposes?’, and that’s a question that came before the TAC.

That matter was whether a Land Rover Discovery 4 could fall within that definition and the TAC said that it did. The decision explains that the law doesn’t require that to be road car a vehicle must be designed only for use on the roads. The Commissioner explained that the Land Rover was “more rugged and has a greater range of capabilities than, for instance, an average saloon or a hatchback. It may be powerful and have enough grip to tow a sizeable caravan”. The Commissioner continued that “It may be able to ascend a slope steeper than that of an Olympic ski jump”. In the end the TAC said the Land Rover Discovery 4 was a car.

Coming back to the TAC decision I mentioned on the level of back-up required for tax-reduction claims. I referred to certain exclusions above from the BIK charge and one of those relate to “pool cars”. These are vehicles which among other Ts and Cs are available to more than one employee, where the vehicle is not normally kept overnight at or in the vicinity of any of the employees’ homes. I mention this specifically because just look at the evidence given to prove that point. The moral of this story, like any tax story, is that you make sure you can back-up any tax claim.

The Tax Appeal Commissioner said that the company’s director gave “unchallenged direct evidence” that the car was only used for company business and that it was kept on the company’s premises at all times. The director said that he lives approximately five miles from the company premises and that he never used the car for personal use. He also said that the car was mainly used by two of the company’s office employees when they needed to make bank lodgements or to meet with customers and collect cheques. Further his personal car was a 2006 one (the make of the car was not given) and that there were other cars at his home which his wife and daughter used but that there would always have been a car available to him.

The mileage for the car as set out in the National Car Test Certificates was on average 112 km per week. The Director gave evidence that bank lodgements would regularly be made, and that the car would be used for meeting customers and collecting cheques and that this would be done by the office staff. He said that the nearest bank to the company’s premises is 8 km away and the Commissioner accepted that this would have necessitated a 16 km round trip to the bank a number of times per week by one of the office staff. The Commissioner also accepted the reality of the company’s business would have involved the need to travel to meet customers and to collect cheques. In particular, the Commissioner accepted that the economic realities of the years in question meant that travelling to meet customers and collect cheques would not have been an unusual activity for the business concerned. Having considered all this the Commissioner found that on the balance of probabilities the car was a pool car for the purposes of the Benefit in kind legislation.

In sum, personal circumstances, car mileage, distance required to be travelled, frequency of trips and nature of the business all came together to prove on the balance of probabilities that the exemption applied. The importance of backup in claiming a tax relief is clear. In short, let’s be careful out there.

Please note this article first featured in the Business Post on Sunday, 19 March 2023 and was re-published kindly with their permission on our website.

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