Revenue define a ‘commercial vehicle’ or ‘company vehicles’ as ‘all cars or vans made available to employees by reason of their employment’.
The definitions around types of vehicles are specific, and there are tax implications depending on the category a particular vehicle falls into. Below are the definitions of cars and vans from Revenue’s guidelines (note that a van has no seating fitted in the roofed areas to the rear of the driver’s seat).
- ‘What is a car?’
A “car” is any mechanically propelled road vehicle designed, constructed or adapted for the carriage of the driver or the driver and one or more persons, other than
· a motorcycle (i.e. a mechanically propelled vehicle with less than four wheels and the weight of which unladen does not exceed 410kgs),
· a van, or
· a vehicle not commonly used as a private vehicle and unsuitable to be so used (such as a lorry or a bus).
The definition of a car includes motorcycles over 410kgs. Where an employer provides an employee with use of a motorcycle that is less than 410kgs, the provisions of this manual do not apply. Section 119(4)(b) instead provides that the annual value of the use of the motorcycle is 5% of the market value of the motorcycle when it was first provided as a benefit by the employer to any employee.
Subsequent adaptation of a vehicle does not alter the fact that the vehicle was originally designed and constructed for the carriage of one or more persons. As such the vehicle would remain a car for tax purposes.
What is a ‘van’?
A van is a mechanically propelled vehicle which –
- is designed or constructed solely or mainly for the carriage of goods or other burden,
- has a roofed area or areas to the rear of the driver’s seat,
- has no side windows or seating fitted in that roofed area or areas,and
- has a gross vehicle weight not exceeding 3,500 kilograms.
If a van is adapted in such a way that it no longer meets the criteria (such as if rear seats are fitted), the vehicle no longer satisfies the criteria to be regarded as a van for benefit in kind purposes. Therefore, the vehicle should be treated as a car and the taxable benefit calculated accordingly.
Where a crew cab or other similar type of vehicle meets all of the above conditions it is regarded as a van rather than a car.
There are different rules for cars and vans when it comes to the calculation of Vehicle Benefit-in-Kind:
Benefit-in-Kind on the use of a vehicle is equal to:
· the cash equivalent of the benefit of the vehicle less
· any amount(s) made good to the employer by the employee in respect of the costs of providing or running the vehicle
The cash equivalent of the benefit of a car is equal to 30% of the original market value (OMV) of the car. The cash equivalent of the benefit of a van is equal to 5% of the original market value (OMV) of the van. Benefit-in-Kind = (OMV x cash equivalent) less amounts made good by the employee
It’s important, therefore, to distinguish between what qualifies as a car and what qualifies as a van; there might be some confusion around a Land Rover, for example.
Given the Benefit-in-Kind rules, it is important that the Land Rover meets the criteria for being a van. Otherwise it could give rise to a Benefit-in-Kind of 30% of the original market value of the vehicle each year.
If you use the Land Rover personally (even if only occasionally), a Benefit-in-Kind payroll would need to be processed.
If it is a commercial Land Rover, (i.e. a van based on Revenue’s rules, not necessarily based on motor tax, what the motor dealer says etc), then the Benefit-in-Kind is 5% per annum.
If it is not a commercial vehicle then the Benefit-in-Kind can be up to 30% per annum, depending on business mileage.
The Benefit-in-Kind is calculated on the original market value of the Land Rover, when it was first bought.
For example, if the Land Rover meets the definition of a van (see below) and it originally cost €50,000, then the Benefit-in-Kind will be €50,000 x 5% = €2,500. The tax on this will be approximately 50%, i.e. €1,250. This tax will be deducted from your payslip each month, i.e. €104 per month.
(Note that both Benefit-in-Kind rates will change from 1 January 2023. The commercial rate will be 8% and the non-commercial rate will be linked to CO2 emissions.)
More (including electric cars)
Revenue’s guidelines state that travelling to the same site each day cannot be claimed as mileage, as this is considered travelling to your place of work. If you have to travel to another site from this office, that should be allowable.
Therefore it is worth considering a company vehicle if mileage is not allowable. The company can then pay for all the running costs of the vehicle. However, the Benefit-in-Kind rules for cars can result in it being not cost-effective to have a company car.
If you have a company car and also use it privately (even only occasionally), a Benefit-in-Kind in payroll would be necessary. See above for the Benefit-in-Kind breakdown.
Capital allowances (wear and tear) are also restricted to €24,000 (or less if the car isn’t CO2 efficient).
This generally makes it not worth having a company car, especially for second-hand cars.
However, there are two other options:
- An electric car – currently 0% Benefit-in-Kind (until at least 2022)
- A van – 5% Benefit-in-Kind (increasing to 8% in 2023). It needs to be a proper commercial vehicle with no seats in the back etc.
We offer a no-obligation introductory meeting where we can discuss the accounting services you require and how our team can help you.
The Fidelia Team