Don't Fear the Taxman: Revenue BIK Guide 2024
There are many good reasons why employers choose to offer company cars to key staff - such as attracting and retaining talent or to minimise vehicle risk. Of course, this important benefit also comes with Benefit-In-Kind (“BIK”) Tax which employers must measure and manage appropriately.
DriverFocus has researched current best-practice around tackling business mileage and discussed the issues with Ireland’s leading tax and payroll professionals. In this guide, we share our findings, show Revenue’s new BIK rules for 2024 and look at why now is a great time to review how you record and report business mileage.
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REVENUE’S BIK RULES NOW BASED ON CO2 EMISSIONS AND MILEAGE
In a nutshell, from 1 January 2023, the cash equivalent of the use of a company car will be determined based on the vehicle’s CO2 emissions as well as business mileage. The BIK charge will now be based on the Original Market Value (OMV) of the vehicle, the annual business travel and the CO2 emissions of the car in accordance with the formula and three steps below (see also Tables A and B):
Original market value (OMV) x A
To calculate A:
Determine the applicable vehicle category from Table B based on the amount of CO2 g/km the vehicle produces
Locate your vehicle category in Table B
Use Table A’s annual business mileage thresholds to establish the appropriate percentage to use for A.
You can also download the full Company Car BIK formula here.
In Budget 2024, Minister McGrath announced an extension to the temporary BIK relief announced in March 2023, for tax year 2024. In short, the OMV of cars in categories A-D along with all vans and EVs, may be reduced by €10,000. In addition, there is a reduction of 4,000kms to the top mileage band (see Figure 2 below).
Table A:
Revised Table A for the 2023 and 2024 tax years only
Table B
Vehicle Categories x Emission Thresholds
REAL-TIME REPORTING NOW REQUIRED
From January 1st 2019, the Revenue Commissioners in Ireland have introduced major changes to the PAYE system. A key element of this modernisation programme is the need for employers to report PAYE in real-time. What this means in practice is that instead of a year-end reporting obligation, employers are now expected to submit a return each payday.
When it comes to company car BIK and business mileage reimbursement, Revenue advise employers that:
"You will need to calculate the ‘cash equivalent’ of your employee’s private use of the company car. The cash equivalent is a percentage of the Original Market Value (OMV) of the car”. “As a result of Finance Act 2019 changes, from 1 January 2023, the cash equivalent of the use of a car will be determined based on the vehicle’s CO2 emissions as well as business mileage”.
In 2019, PwC wrote about the new real-time reporting obligation in relation to company cars:
"Company cars are typically provided for the full year, and the distances for determining the applicable tax rate are based on the number of miles/kilometres driven in the calendar year. Many employers struggle to get their employees to maintain and submit accurate logs on a regular basis, with the result that the employer may include the highest BIK amount (or an estimate based on the prior year’s mileage) and then perform a true-up semi-annually or at year-end. Particularly for employers who process weekly or fortnightly payrolls, it would involve significant additional business process to request, obtain and review all employee mileage logs on a weekly/fortnightly basis."
In a more recent update, Revenue advised:
Accountancy firms with experience in this area, report that business mileage and BIK tax have consistently been among the top areas of interest when Revenue engage in what they refer to as “Timely Targeted Interventions”. With tapering relief on BIK tax for higher levels of business mileage, if anything, there can be a temptation for some individuals to claim more business kilometres than actually driven. Coupled with recently increased resources and REAP - Revenue’s compliance profiling system - it is anticipated non-compliance risks will be targeted earlier and more frequently.
Another consequence to note is that from 2019, there are also increased penalties for underpaid tax. For example, the fixed penalty of up to €4,000 per incorrect return, effectively means a potential penalty of €48,000 for any given year. This is in addition to statutory penalties which range from 3% to 100% of the tax due.
Finally, in cases where PAYE tax on mileage and travel expenses is not correctly withheld, the tax will be recouped by Revenue on a grossed-up basis, meaning that every €1,000 paid to employees will cost the employer €2,309 including tax and employer PRSI.
REVENUE AUDIT - COMPANY CAR BIK EXAMPLE
Sam is an account manager and drives a company car with an OMV of €25,000. Suppose in 2021, Sam claimed annual business mileage of 28,000 kms and payroll applied reduced BIK tax of 24% (on the €25,000) of €6,000 instead of €7,500. However, when Revenue undertook an audit, Sam could not produce sufficient evidence of this business mileage and so the following tax and penalties were applied:
Underpaid tax: €1,500
Fixed penalties: €4,000
Statutory penalty: €750
TOTAL CHARGE: €6,250
Note: this example is based on just one driver, for one year and for one band change. Clearly the tax and penalties can be higher if any of these three conditions are increased.
ELECTRIC VEHICLES (EVs)
Finance Act 2022 extended relief on benefit-in-kind provisions in relation to electric vehicles. An electric vehicle is one that derives its motive power exclusively from an electric motor, as such hybrid vehicles do not qualify for this treatment. As Sustainable Energy Authority of Ireland (SEAI) grants are paid after the registration of the vehicle, the OMV is not reduced by the value of the SEAI grant.
This relief also applies to vehicles made available in the period from 1 January 2023 to 31 December 2027. The relief from the BIK charge arising during this period applies on a tapered basis. For an electric vehicle made available for an employee’s private use during the years 2023 to 2027, the cash equivalent will be calculated based on the actual OMV of the vehicle reduced by:
- €35,000 in respect of vehicles made available in the 2023, 2024 and 2025 year of assessment
- €20,000 in respect of vehicles made available in the 2026 year of assessment
- €10,000 in respect of vehicles made available in the 2027 year of assessment.
This reduction applies irrespective of the actual OMV of the vehicle or when the vehicle was first provided to the employee. If the reduction reduces the OMV to nil, a BIK charge will not arise. Any portion of OMV remaining, after the reduction is applied, is chargeable to benefit-in-kind at the prescribed rates.
VANS
Section 6 of Finance Act 2019 also introduced a change to the percentage used in the calculation of the cash equivalent of the use of a van. From 1 January 2023, the percentage used in the calculation of the cash equivalent of the use of a van will increase from 5% to 8%.
CAUTION: THE “8K RULE”
In 2023, we sought clarification from Revenue on the guidance it provides on it’s website (see below) regarding the potential use of 8,000kms as the basis for caculating private mileage in a company-provided car:
Revenue Example - “…you may assume 8,000km are private”
Source: Revenue - Private Use of Employer-Provided Vehicles - Revenue.ie - (verified February 2024)
However…as this could be interpreted as allowing a driver to simply deduct 8,000kms from their total annual mileage, Revenue referred us to section 4.1.5 of TDM 05-01-01B. This deals with a scenario where there are no records produced or where the records are not satisfactory. Revenue emphasise the line “in the absence of sufficient evidence to the contrary”. In other words, the use of the 8,000 km for private mileage is intended to be for exceptional circumstances only and it should not be used as a benchmark by an employer or employee to contrive to have a more favourable BIK charge. In short, the onus is on employers to ensure that sufficient records are kept.
Revenue - “Records to be kept”
Source: Revenue Tax and Duty Manual - Part 05-01-01b
According to IPASS - Ireland’s leading provider of Payroll and VAT training and certification - guidance, "many people, including many accountants, incorrectly calculate the annual business mileage as being the total annual mileage less 8,045kms (5,000 miles). This is not correct. This arises because Revenue usually assume that an individual will travel at least 8,045kms on private travel in a year. If the total annual distance travelled less the total business travel does not amount to at least 8,045kms, Revenue are likely to query the accuracy of the records. However, it is incorrect to state that Revenue will accept the total distance travelled less 8,045kms as being the annual business travel. If proper records of business travel are not maintained as required above, Revenue are perfectly entitled to reject the employer’s calculation and to recalculate the taxable value of the BIK."
HOW TO BE TAX COMPLIANT TODAY
“Ensure adequate travel records are maintained for all employees/directors. These records should be updated at least on a on a monthly basis, thereby ensuring the correct BIK is charged through payroll on a real time basis and is reflective of actual business KMs travelled.”
Undertake a tax review to help identify potential gaps in your current processes, including any company car BIK tax and/or business mileage reimbursements for grey fleet drivers. The new rules from 1st January 2023 will see many drivers face significant increases in company car BIK tax. It is reasonable to assume that Revenue will check that businesses are fully compliant and can produce accurate records on demand. You should speak with your tax advisor for guidance and/or see below for further best-practice and contacts.
Ensure your BIK tax deductions follow Revenue rules (see Revenue’s Tax and Duty Manual Part 05-01-01b). Of course, Revenue are well aware that business mileage claims submitted on Excel may not accurately reflect the reality of business trips undertaken i.e. whether trip distances are exaggerated or if the journeys occurred at all! As a consequence, Revenue audits invariably target company car BIK / business mileage expenses as a relatively easy way to show the value of a tax audit. Not surprisingly, this was likened to “shooting fish in a barrel” by more than a few tax experts!
Simple to use digital technology can also help you ensure tax compliance by providing evidence of actual - rather than claimed - business trips in the form of an electronic logbook. Reducing the hassle of mileage administration for staff who are on the road, also means that they will have more time to spend on more productive activities. A third benefit is that payroll professionals - already facing an increased reporting burden - will not have to wait for or spend so much time chasing colleagues for their mileage logs.
CHOOSING A BUSINESS MILEAGE SYSTEM
Today, most employees - more than 80% according to an IPASS Survey in 2017 - use Excel to report business mileage. Of course, such claimed mileage can include fictitious trips or “rounding-up”. There is though, a better way to ensure that your business is not exposed to additional costs and tax penalties as outlined above.
“In our view, the only “watertight” method of ensuring that the company car BIK is calculated correctly is to track business mileage by keeping a log book or using a smartphone app”
- Claire Davey, Tax Director, KPMG Ireland
While commercial vehicle telematics (commonly referred to as “trackers”) typically have some trip distance reporting functionality, these systems tend to be overly complex, expensive and viewed as “big brother” by staff and decision-makers who simply want Revenue-required, business trip logging. In contrast, smartphone app-based technology - such as DriverFocus ALLY- can automate actual business mileage capture while being a simple, positive and respectful experience from a user perspective. Whatever mileage capture system you implement should greatly help remove the “low-hanging fruit” the next time a Revenue Inspector comes calling. And of course showing strong compliance around BIK and mileage should lessen the chances of a more extensive Revenue intervention!
Reduce Admin and Boost Revenue Compliance
It’s Easy with Ireland’s #1 Mileage App - ALLY MILEAGE
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DISCLAIMER
This guide is available as an information resource, but should not be construed or relied upon as legal advice.
FURTHER GUIDANCE
Guidance:
IPASS - BIK Training for Payroll Professionals
Revenue - Guide on Private Use of Company Cars
Revenue - December 2022 update to include Electric Vehicles (EVs)
Department of Finance - March 2023 Temporary Change to Benefit In Kind
Articles:
Business Plus - Budget 2024: The KPMG View On Employment and Indirect Taxes
Deloitte - article in Accountancy Ireland (January 2019)
DriverFocus - COVID-19: Company Cars and BIK - What You Need to Know For 2021
KPMG - PAYE Modernisation and Real-Time Reporting
KPMG - Towards Greener Company Cars? (March 2023)
PKF - PAYE Modernisation and Benefit in Kind
PwC- PAYE Modernisation: Are you ready for real-time reporting?
Appendix - BIK Calculator:
Step One: Capture and verify Business Mileage (in kms).
Step Two: Determine relevant BIK rate (from 8% to 37.5%) from Revenue Table A.
Step Three: Multiply OMV (original market value of the company car) by the relevant BIK rate
Solution:
Reduce Admin and Boost Revenue Compliance
It’s Easy with Ireland’s #1 Mileage App - ALLY MILEAGE
60-Second Video | 30-Day Free Trial | Review | Testimonials