Benefit-in-Kind on Company Cars

Introduction

This article outlines the tax position where a company car is made available to a director/employee for private use.

Charge to benefit-in-kind on company cars

An employee is chargeable to tax on the benefit arising where, by reason of the employment, a car is made available (without a transfer of ownership) to him/her and the car is, in the tax year, available either for that individual’s private use or to his/her family or household.

A car made available to an employee by his/her employer (or a person connected with the employer) is regarded as being made available by reason of the employment.

A car made available to an employee is deemed to be available for private use unless the terms on which it is made available prohibit private use and no such use is made of the car in the tax year.

Once a car is available to the employee for private use, it is irrelevant whether or not any private use is made of it.

The car benefit-in-kind provisions apply both to directors and to other employees, irrespective of the level of emoluments from their offices or employment’s. They also apply whether the office or employment is taxable under Schedule E or, in the case of a foreign office or employment, under Schedule D, Case III.

Pool Cars

A car which is included in a car pool for the use of employees of one or more employers is treated as not available for the private use of employees if, in the tax year, all of the following conditions are met:

• The car was available to, and actually used by, more than one of the employees concerned
• In the case of each employee, the car was made available to him/her by reason of the employment
• The car was not ordinarily used by any one employee to the exclusion of the others
• In the case of each of the employees concerned, any private use of the car made by him/her was merely incidental to his/her other use of it in the year
• The car was not normally kept overnight on or in the vicinity of the employees’ homes.

Calculation of car benefit-in-kind

The calculation of the benefit-in-kind of the use of a car is summarised as follows:

Benefit-in-Kind is equal to the cash equivalent of the benefit of the car less amounts made good to the employer by the employee in respect of the costs of providing or running the car.

Cash equivalent of the benefit of the car is equal to the original market value of car × 30% (20% 1982/83 to 1991/92 inclusive).The cash equivalent is reduced, for years 1992/93 et seq. by:

• 4½% (3% for years 1982/83 to 1991/92 inclusive) of the original market value of car, where no part of the cost of private fuel is borne by the employer
• 3% (2% for years 1982/83 to 1991/92 inclusive) of the original market value of car, where no part of the cost of car insurance is borne by the employer
• 3% (2% for years 1982/83 to 1991/92 inclusive) of the original market value of car, where no part of the cost of repair and servicing of the car is borne by the employer
• 1% (½% for years 1982/83 to 1991/92 inclusive) of the original market value of car, where no part of the motor tax is borne by the employer.

Amounts made good by employee

The deduction in respect of amounts made good by the employee to the employer is not to include any costs borne by the employee for which he/she was allowed a percentage reduction in the cash equivalent of the benefit.

Original Market Value

The original market value of a car is the price which it might reasonably have been expected to fetch if sold in the State singly in a retail sale in the open market, immediately before the date of its first registration (in the State or elsewhere) i.e. the Irish open market price for a single retail sale immediately before the date on which the car was first registered. For example, the original market value of a car first registered in the UK on 1 July 1994 and imported into Ireland on 1 November 1996 (and registered in Ireland in November 1996) would be the Irish open market price for a single retail sale immediately before 1 July 1994. Original market value includes vehicle registration tax (VRT).

In practice, the original market value is considered by reference to list prices. Where it is established that a discount was involved and such discount was normally obtainable in respect of a single retail sale in the open market, the list price may be reduced accordingly. In cases where an exceptionally large discount was obtained (e.g. a quantity or fleet discount) or the discount cannot be determined (e.g. a car has been traded in against a new car) or the car involved was purchased second-hand, claims in respect of discounts must be limited to the discounts normally obtainable in respect of a single retail sale on the open market. Reductions for discounts do not usually exceed 10%.

Claims for reductions must be considered on a case-by-case basis and an automatic reduction (of any percentage) cannot be applied. For example, a discount would not normally be obtainable where the model of car is in scarce supply. The objective in each case is to determine the original market value.

Car available for less than full year

Where a car is available for only part of the tax year, the cash equivalent for that year is adjusted in the same proportion as that part of the year bears to the full year. Cases where a car is made available to the employee for the first time during the tax year (e.g. on taking up employment) or a car is no longer available to the employee during the tax year (e.g. due to cessation of employment) would be examples of when this apportionment can apply.

Reduction for high business mileage

Where the business mileage for a tax year exceeds 15,000 miles (10,000 for the years 1982/83 to 1991/92 inclusive) the cash equivalent of the benefit of the car is reduced by applying the scales shown on page 17.

Business mileage in absence of particulars

In a case where a person fails to give particulars of business mileage or private mileage for the year, or where the particulars delivered are not satisfactory, the business mileage may, in the absence of sufficient evidence to the contrary, be determined by deducting 5,000 from the total number of miles travelled in the year.

Annualising business mileage

In general, the business mileage is the actual business mileage travelled in the tax year. However, where the car is available for only part of the tax year e.g. the car is made available to the employee on taking up of the employment during the tax year, the business mileage may be “annualised” for the purpose of determining the percentage charge to be applied in the calculation of the cash equivalent of the benefit of the car. The following formula may be applied to determine the annualised business mileage:

A × B

C

A Actual business mileage

B Full Year

C Part of Year in which car is available

Example

A company car is made available to an employee for private use on 6 November 1996. The original market value of the car is ₤18,000 and the employer bears all the costs in respect of private fuel, insurance, repair and servicing and road tax. The actual business mileage in 1996/97 is 8,250 miles. The employee makes good to the employer ₤750 in respect of the cost of providing or running the car.

As the car is made available for part only of the year i.e. for 5 months from 6 November 1996 to 5 April 1997:

● the cash equivalent is adjusted by 5

12

● the actual business mileage may be annualised to 19,800 miles i.e 8,250 miles × 12

5

The percentage charge to be applied in determining the cash equivalent of the benefit of the car for 1996/97 is 80% (see scales on page 17).

The 1996/97 benefit-in-kind calculation is:

Benefit-in-kind is equal to the cash equivalent of the benefit of the car less ₤750 (amounts made good)

Cash equivalent of the benefit of the car is equal to the OMVof car × 30% × 5 × 80%

12

which is:

₤18,000 × 30% × 5x 80% = ₤1,800

12

Benefit-in-Kind is: ₤1,800 less ₤750 = ₤1,050

Reduction of 20% in certain circumstances

For the tax year 1996/97 et seq. if an employee does not qualify for tapering relief the cash equivalent may be reduced by 20% if the following conditions are met:

• • The employee works an average of 20 hours per week
• • Travels at least 5,000 miles per annum on employers business
• Spends at least 70% of working time away from employers premises

Example

company car is made available to an employee on 6 April 1996. The original market value of the car is ₤18,000. All running costs are met by the employer. The employee works full-time for the firm and travels 6,000 miles on company business. The employee spends more than 70% of working time away from employers premises.

Benefit-in-kind 1996/97

	₤
₤18,000 × 30%	5,400
Less reduction of 20%	1,080
Benefit-in-kind	4,320

A condition for this relief is that an employee must retain a log book detailing business mileage, business transacted, business time travelled and date of journey. This log should then be certified by the employer as being correct.

Foreign Earnings Deduction Relief

A special deduction is provided in certain circumstances where an individual works abroad for part of the tax year. (This is covered in paragraph 7 of explanatory residence Leaflet RES 1 - April 1997). The gross benefit-in-kind falls to be included in the earnings by reference to which this deduction is calculated. No further reduction will therefore arise.

Overseas duties and Benefit-in-Kind

A car provided to a director or an employee will not be regarded as available for private use for that part of the year in which the director or employee is outside the State for the purpose of performing the duties of the office or employment provided the following conditions are met:

• No claim to foreign earnings deduction relief (if any) is made in respect of the car benefit
• The aggregate number of days spent outside the State for the purpose of performing the duties of the office or employment is at least 30 complete days in the tax year (any holiday period abroad is excluded). A day for this purpose must include an overnight stay.
• The director/employee travels abroad without the car
• The car is not available for use by the director/employee’s family or household during the director/employee’s period of absence outside the State.

Business Mileage Tables

Years 1982/83 to 1991/92 inclusive

Business Mileage
Lower limit	Upper limit	% of cash equivalent
(1)	(2)	(3)
Miles	Miles
Up to	10,000	100%
10,001	11,000	95%
11,001	12,000	90%
12,001	13,000	85%
13,001	14,000	80%
14,001	15,000	75%
15,001	16,000	70%
16,001	17,000	65%
17,001	18,000	60%
18,001	19,000	55%
19,001	20,000	50%
20,001	21,000	45%
21,001	22,000	40%
22,001	23,000	30%
23,001	24,000	20%
24,001	25,000	10%
25,001		Nil

Years 1992/93 et seq.

Business Mileage - Percentage of Cash Equivalent
Lower Limit	Upper limit	1992/93	1993/94	1994/95	1995/96	1996/97 & subsequent
(1)	(2)	%	%	%	%	years %
Up to	15,000	100	100	100	100	100
15,001	16,000	97.5	97.5	97.5	97.5	97.5
16,001	17,000	95	95	95	95	95
17,001	18,000	90	90	90	90	90
18,001	19,000	80	80	85	85	85
19,001	20,000	70	70	75	75	80
20,001	21,000	60	60	65	70	75
21,001	22,000	50	55	60	65	70
22,001	23,000	40	45	50	55	65
23,001	24,000	35	40	45	50	60
24,001	25,000	30	35	40	45	55
25,001	26,000	25	30	35	40	50
26,001	27,000	20	25	30	35	45
27,001	28,000	17	20	25	30	40
28,001	29,000	14	18	22	28	35
29,001	30,000	10	15	20	25	30
30,001	-	5	10	15	20	25