Emer Higgins (Dublin Mid West, Fine Gael)
Link to this: Individually | In context | Oireachtas source

240. To ask the Minister for Finance if he will consider introducing a two-tiered BIK system based on a person’s income, given the impact that the BIK changes introduced in Budget 2023 will have on workers during the cost-of-living crisis; and if he will make a statement on the matter. [57640/22]

Paschal Donohoe (Dublin Central, Fine Gael)
Link to this: Individually | In context | Oireachtas source

For clarity, I did not make any changes in Budget 2023 to existing benefit-in-kind (BIK) provisions that would negatively impact on the application of benefit-in-kind for workers. Rather, I amended two specific measures to further enhance the BIK treatment applicable to employees.

Firstly, the relief provided for in section 112B of the Taxes Consolidation Act 1997 (TCA), which is commonly referred to as the Small Benefit Exemption, was enhanced by increasing both the value and number of qualifying incentives that can be provided tax free by employers under this scheme, from €500 to €1,000 and one to two incentives respectively. This change will apply for the 2022 tax year and subsequent years. In addition, I introduced a higher exemption limit where an employer provides a cargo bike and related safety equipment to an employee under the Cycle to Work scheme, with the BIK exemption limit in respect of a cargo bike and safety equipment increased to €3,000 (with a limit of €1,250 and €1,500 for e-bikes applicable).   

I made changes to the calculation of benefit-in-kind on employer provided vehicles, in section 6 of the Finance Act 2019. This measure is due to commence from 1 January 2023, and it is therefore assumed that the query is referring to the implementation of these new rules applying to the calculation of BIK in respect of employer provided cars to employees, for the tax year 2023 and subsequent years. This is a key part of Government policy to strengthen the environmental rationale behind employer-provided car taxation, as committed to in the Climate Action Plan.

Broadly, new rates of benefit-in-kind will apply to the provision of a company car, from 1 January 2023, which among existing factors will now take into account the CO2  emissions of the car, its original market value and the number of business kilometres travelled annually.  Therefore, lower rates of tax will generally apply to cars that are more environmentally friendly. The early announcement of this measure in Budget 2020 was purposely provided to send an advanced signal to industry and allow for typical lease renewal periods of approximately 3 years.

It should also be noted that the charge to BIK is not related to an employee’s income. It is a charge for the benefit that an employee derives from the private use of an employer provided vehicle, thus explaining the rationale for the current approach.  

In summary, this new BIK regime in respect of employer provided vehicles has an environmental rationale and is designed to incentivise the use of more environmentally friendly vehicles. It thereby seeks to change behaviours to get lower emissions vehicles, in particular EVs, into greater usage.

I have no proposals to make any change to the new BIK regime.

Finally, I am advised by Revenue that further information on the taxation of employer-provided vehicles is included in Tax and Duty Manual Part 05- 01-01b, which is available on the Revenue website.