COVID-19: Company Cars and BIK – What You Need To Know For 2021

Introduction

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 continues to arise for employers, especially as the COVID-19 pandemic restrictions are likely to continue first the quarter of 2021.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. 

Revenue and Tax Guidance

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. In response to this issue, Revenue issued a concession in March 2020, whereby January’s business mileage could be used as a “base month” in assessing what percentage of the car’s Original Market Value (OMV) should be used in calculating the BIK value, where private use was allowed during the COVID-19 travel restriction period, but business mileage was curtailed due to the lockdown restrictions. This concession is explained in further detail below.

In late December 2020, Revenue advised that the concession to calculate BIK tax by reference to January business mileage was not applicable from 1 January 2021.

According to Claire Davey, Tax Director in KPMG:

“in response to the new national lockdown announced by the government in the last days of 2020, in a welcome move, Revenue have confirmed in eBrief No. 004/21 released in January 2021 that the temporary concessions relating to employer-provided vehicles will continue to apply for 2021 until further notice."

By way of reminder, Revenue guidance on the calculation of company car BIK is as follows:

“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 2020, amount of private use, photographic evidence of odometer etc.

(d) Employee continues working

Where an employee continues to undertake business travel as usual in an employer-provided vehicle, the usual BIK rules will apply.

For employers who are claiming the Employment Wage Subsidy Scheme (EWSS) and have employees with company cars, the BIK tax calculation for this benefit should be calculated in line with the Revenue concession, as outlined above.

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.

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Further Guidance

Guidance:

DriverFocus: Company Cars Benefit in Kind Guide 2021

KPMG: KPMG Ireland Tax & Legal Services

Revenue Commissioners: COVID-19 Information on Employer-provided vehicles

Please note: To the best of our knowledge, the guidance in this blog is accurate as of noon on Monday 27th January 2021.  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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