We here at Colman Dalton know that for many Irish business owners, changing the company car is a decision made on instinct: the old car is getting tired, a new model catches the eye and the deal seems too good to miss. Yet the choice of vehicle, and how it is provided, can have a significant effect on the tax you and your company pay for years to come. Before you sign on the dotted line, it is worth understanding how Benefit in Kind works and which factors could make one option far more tax efficient than another.
How Benefit in Kind on Company Cars Works
When a company provides a car that is available for a director’s or employee’s private use, the private element is treated as a taxable benefit. This Benefit in Kind is added to the individual’s pay and is subject to income tax, USC and PRSI through payroll, while the company also pays employer PRSI on it.
The taxable amount is calculated by applying a percentage to the car’s original market value, which is broadly its list price including VAT and VRT when first registered. The percentage depends on two main factors: the car’s CO2 emissions and the number of business kilometres driven in the year. Lower emissions and higher business mileage generally result in a lower charge. The charge is designed to reflect the overall cost of providing the car, including running costs such as insurance, motor tax and servicing where these are paid by the company.
1. Emissions Matter More Than Ever
Under the current system, emissions have a direct effect on the Benefit in Kind rate. A higher-emission car with the same list price as a cleaner alternative can produce a considerably larger annual tax bill, and that difference is repeated every year you drive it.
Electric and low-emission vehicles have benefited from additional reliefs in recent years that reduce the value on which Benefit in Kind is calculated. These reliefs have changed over time, and the level available depends on when the car is first provided, so check the current position before committing. Emissions also affect the capital allowances your company can claim on the car and, in some cases, whether any VAT is recoverable, so a greener choice can pay off in more than one way.
2. Business Mileage and Good Records
Higher business mileage reduces the Benefit in Kind percentage, but only if you can prove it. Revenue expects detailed records of business journeys, including dates, destinations, the purpose of each trip and the kilometres travelled. Commuting between home and your normal place of work does not count as business travel.
If you drive substantial business mileage, keeping an accurate log could reduce your tax bill noticeably. If your records are incomplete, you may be taxed at the higher rate that applies to lower mileage. A simple app or logbook, updated as you go, is far easier than trying to reconstruct a year’s travel at year end.
3. Company Car or Personal Car?
A company car is not always the most tax-efficient option. For some directors, it can make more sense to own the car personally and have the company reimburse business journeys using the approved civil service motor travel rates, which can be paid tax free when supported by proper records.
This approach often suits directors with relatively modest business mileage or those who prefer a car with higher emissions, where the Benefit in Kind cost would be high. Conversely, a low-emission company car driven for significant business mileage may work out better. Comparing the full after-tax cost of both options, including Benefit in Kind, running costs, allowances and reimbursements, is the only reliable way to decide.
4. Buying, Leasing and Timing
How the car is acquired also matters. Where a company buys a car, capital allowances can be claimed over a number of years, but these are capped and may be restricted further depending on emissions. Where a car is leased, similar restrictions can apply to the deductible lease payments. VAT on cars is generally not recoverable, although a portion may be reclaimable on certain lower-emission vehicles used mainly for business.
Timing can make a difference, too. Changes to reliefs, rates or thresholds can affect the cost of a car depending on when it is first registered or provided. If you are planning a change, consider whether the timing works in your favour, particularly around year end or the start of a new tax year.
5. Consider the Alternatives
For some businesses, a commercial van may be more appropriate than a car. Vans are subject to a different Benefit in Kind regime, and in certain circumstances, where private use is prohibited and the van is essential to the work, no Benefit in Kind may arise at all. Strict conditions apply, so these should be checked carefully.
Other arrangements, such as employer-provided charging facilities for electric vehicles, can also have their own tax treatment. Understanding the full range of options helps you choose the arrangement that best fits both your business needs and your personal circumstances.
Plan Before You Change
A company car can be a valuable benefit, but it can also be an expensive one if the tax implications are overlooked. Before changing vehicle, compare the options, check the emissions, consider how you will record your mileage and understand the reliefs that currently apply. A short review now could save a significant amount over the years you drive the car.
At Colman Dalton, we help directors compare company car options, calculate the real cost of each and make choices that suit both their business and their personal tax position.
If you would like to discuss your business, contact us on or email breeda@colmandalton.com or visit colmandalton.com.
Disclaimer: This article is based on publicly available information and is intended for general guidance only. While every effort has been made to ensure accuracy at the time of publication, details may change and errors may occur. This content does not constitute financial, legal or professional advice. Readers should seek appropriate professional guidance before making decisions. Neither the publisher nor the authors accept liability for any loss arising from reliance on this material.