Temporary change to Benefit-in-Kind regime for vehicles in Finance Bill 2023

Overview

On March 7th, the Irish government announced that it had approved the Finance Bill 2023, which will enact the taxation measures recently introduced to support families and businesses facing challenges related to high energy costs and the cost of living. Additionally, the Minister for Finance, Michael McGrath, announced a temporary modification to the Benefit-in-Kind regime for vehicles.

While the shift to a CO2-based Benefit-in-Kind system is an important step in meeting Ireland’s climate targets by incentivizing the use of electric and low-emission vehicles, a significant number of employees with cars in the typical emissions range have seen a significant increase in their income tax liability since the start of 2023.

To address this issue, the government has agreed to introduce a relief of €10,000 on the Original Market Value (OMV) of cars in Categories A-D. This relief will reduce the amount of Benefit-in-Kind payable by employees who use these cars. However, cars in Category E are not eligible for this relief.

In essence, employers will be able to reduce the OMV by €10,000 when calculating an employee’s Benefit-in-Kind liability. This treatment will also apply to all vans and electric vehicles. For electric vehicles, the OMV deduction of €10,000 will be in addition to the existing relief of €35,000 that is currently available, providing a total relief of €45,000 for EVs in 2023.

Furthermore, the highest mileage band will be revised by reducing the upper limit by 4,000km, meaning that the highest mileage band will now begin at 48,001km.

These changes will be retroactively applied from January 1, 2023, and will remain in effect until December 31, 2023. The government plans to introduce these measures during the Committee Stage of the Finance Bill 2023.

In summary, these temporary modifications to the Benefit-in-Kind regime for vehicles will help to alleviate the financial burden on employees who use cars with typical emissions levels. The changes will also encourage the use of low-emission vehicles, which is essential in achieving Ireland’s climate targets.

Minister for Finance Michael McGrath stated:

“The government stated its continued support for the emissions-based vehicle Benefit-in-Kind regime, in place since January 1st, 2023, for environmental reasons.

However, the government acknowledged the challenges faced by some individuals with the increased BIK under the current inflationary conditions.

As a solution, the government announced temporary changes to the BIK for the year 2023 to alleviate some of the increases linked with the new emissions-based calculation.”

Finance Bill 2023

The Finance Bill 2023 will implement the taxation measures announced on February 21st by the government to aid families and businesses with high energy prices and living expenses. Once enacted, the Bill will give full legal effect to the Financial Resolutions passed by Dáil Éireann on 22 February.

The Bill is expected to provide for:

amendments to the rates of Mineral Oil Tax to provide for the phased restoration of the rates in relation to petrol, diesel, and marked gas oil by 31 October 2023
the extension of the temporary reduction in VAT on gas and electricity, from 13.5% to 9% to 31 October 2023
the extension of the temporary reduction in VAT on Tourism and Hospitality, from 13.5% to 9% to 31 August 2023
the zero VAT rating of supplies of COVID-19 testing kits
amendments to the Temporary Business Energy Support Scheme (TBESS)
the further extension of six agri-tax reliefs that are forms of permissible state aid that are currently due to expire on 30 June 2023, and a number of technical amendments required by the revised EU Agricultural Block Exemption Regulation (ABER)