COVID-19: Company Cars and BIK – What You Need To Know Now
Many Irish businesses provide company cars to employees who have been restricted to staying at home and only undertaking essential travel during the COVID-19 pandemic. This article looks at the key benefit-in-kind (“BIK”) questions that arise for employers.
According to the HSE, “to help stop the spread of coronavirus (COVID-19) everyone has been asked to stay at home”. With the exception of those involved in the provision of key services whose attendance at the workplace is absolutely essential, “individuals should work from home”.
While it is important that the topic of BIK tax should be kept in perspective during this crisis, employers and employees do need clarity on the consequences of having company cars that are not being used for business.
In many cases the company car will be parked outside the employee’s home unused. With no driving for work, the basis for calculating BIK tax – i.e. business-related mileage / kilometres – normally means a higher amount of tax is due.
Revenue and Tax Guidance
Last Friday (3rd April), Revenue provided this guidance where an employee does not undertake business travel as usual in an employer-provided vehicle:
“For the duration of the Covid-19 restrictions, where an employee is in receipt of a vehicle (car or van) provided by his or her employer, the following may apply:
(a) Employer Takes Back Possession of the Vehicle
Where an employer takes back possession of the vehicle and an employee has no access to the vehicle, no BIK shall apply for the period.
(b) Employer Prohibits Use
Where an employee retains possession of a vehicle, but the employer prohibits the use of the vehicle, no BIK shall apply if the vehicle is not used for private use. Records should be maintained to show that the employer has prohibited its use and no such use has occurred, for example communication from employer, photographic evidence of odometer etc.
(c) Employer Allows Private Use
Where an employee has a car provided by his or her employer and
the circumstances in the previous example don’t apply
limited or reduced business mileage (if any) is undertaken during the period of the COVID-19 crisis and
personal use is limited
the amount of business mileage travelled in January 2020 may be used as a base month for the purposes of calculating the amount of BIK due. Thus, the percentage applied in the calculation of the cash equivalent, which is based on annualised business mileage, may have regard to the actual business mileage for January 2020, for the period of the COVID-19 restrictions. Appropriate records should be kept, for example business mileage travelled in January, amount of private use, photographic evidence of odometer etc.“
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Claire Davey, Director in KPMG who specialises in employment taxes, welcomes the temporary measures introduced by Revenue for the calculation of car BIK during the COVID-19 crisis.
“The measures introduced by Revenue on company car BIK are very welcome and take a pragmatic approach in these challenging times. These measures should ensure that employees are not adversely affected from a tax perspective for not being able to use their company car for business purposes during this emergency period. This is especially important where many employees’ earnings have been significantly reduced, as the economic reality of this emergency materialises”.
Revenue also issued guidance around the Operation of the Transitional phase of the COVID-19: Temporary Wage Subsidy Scheme, which explains how BIK should be treated in the case of eligible employees for the duration of the scheme:
“Eligible companies can suspend the operation of BIK for eligible employees for the period that the employee is on the scheme. For employees covered by this scheme, BIK or notional pay does not need to be included in Gross Pay, however the notional pay will be liable tax and USC on review at the end of the year.”
Claire Davey notes, that while the suspension of company car BIK during the COVID-19 emergency period is a helpful relaxation of the usual BIK rules on Revenue’s part…
Employees need to be mindful that taxes due on BIK and indeed any portion of their income funded by the Temporary Wage Subsidy Scheme during this time, is ultimately taxable and Revenue will seek to collect taxes due by way of an end of year review. It is expected that the taxes due on this BIK will be collected by way of reduction in an employee’s standard rate band and tax credits in the following year or years.”
The need for businesses to keep appropriate records is key. Employees and employers who can clearly evidence actual business mileage are in a much stronger position to show compliance with these guidelines and when normal business resumes, company car BIK in general.
Further Guidance
Guidance:
DriverFocus: Company Car Benefit in Kind Guide 2020
KPMG: KPMG Ireland Tax & Legal Services
Revenue Commissioners: COVID-19 Information on Employer-provided vehicles and TWSS
Please note: To the best of our knowledge, the guidance in this blog is accurate as of noon on Monday 6th April 2020. As the COVID-19 situation evolves, there may well be further changes to tax rules. We recommend that you should always check with your tax advisor prior to making any final decisions.
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