Electric cars and BIK exemption
We are now well on our way through the year (where did March come out of?!), and now might be the time you start thinking about getting a new van for your business or car for your employees/directors. But with the initial cost involved, as well as the running costs, is it really worth it?
Well, we have some good news for you! Did you know that electric vehicles (both the cost of and subsequent charging) qualify as a BIK (or benefit in kind) tax exemption? As you may be aware, a BIK, is any non-cash benefit, that has a monetary value. As the benefit has a value, therefore it must be treated as taxable income.
BIK for company cars used to be a huge draw for employees. However, it is now not as much of a perk as it used to be, with the BIK calculation based on original cost, CO2 emissions and business kilometres. There is an employer PRSI cost and the employee suffers a deduction of payroll taxes, PAYE, PRSI & USC.
This is where your electric vehicle comes in. Since January 1st, employers are now able to provide an electric vehicle that will incur absolutely no taxation for the employee/director or no employer PRSI cost on the benefit. You may remember the Government brought this in in last years budget. Initially, it was to be proposed as a tax free BIK for one year. This has been extended for a minimum of three years to five years. This could be an annual saving of up to €10,000 for low mileage users. Now that is definitely not an amount of money to be sniffed at!
It’s also important to remember that the new BIK rules are purely for electric vehicles so they don’t apply to hybrid vehicles.
Another perk of switching to an electric vehicle for your business is that the cost of the electric vehicle can be claimed as a capital allowance or as an accelerated capital allowance provided the vehicle is on a qualifying list with the SEAI.
A Capital allowance is where a business can claim a tax write-off for the cost, over a period of years, against its profit to reduce the amount of tax it pays. Capital allowances are treated as a deduction against your taxable profit. For energy efficient equipment, such as an electric vehicle, allowances can be claimed at an accelerated rate of 100% in year 1. It is not just available for cars it is also available for vans. There are some criteria to meet however to obtain the accelerated rate of 100%:
- The electric vehicle must be new
- It must meet energy efficient criteria
- It must fall within one of the 10 classes of technology specified in tax legislation (electric vehicles are number 1 here)
This all comes on top of the €5,000 VRT tax relief and up to €5,000 SEAI grant (you can find the list of private and commercial grant rates here) that are already in place. The Government are doing a great job of incentivising the take up of electric cars, we’ll give them that! Now if that’s not enough incentive to invest in an electric vehicle, I don’t know what is!
Pros of EV
- Low running costs
- Substantial grants available
- Public charging is currently free
- No BIK taxation
- Grants for installation of home chargers
- No employers PRSI
Cons of EV
- Less mileage than conventional – but for employees using the vehicle for work, this shouldn’t be an issue
If you’d like further information on how the BIK for electric vehicles can help you or your business, contact us today!