Zero rate of benefit in kind for three to five years, according to Brian Keegan
The follow-up to Budget Day is the publication of the law — the Finance Bill — which gives effect to the Budget Day changes.
The Finance Bill is put through the Oireachtas with almost unseemly haste.
This is because of the rules applying to eurozone countries which require national budgets to be presented by the middle of October, and the decisions to be put into law by year-end.
Over the course of this process, additional tax measures over and above what was announced on Budget Day often emerge. These are rarely in the taxpayers’ favour.
It is a measure of the preoccupation with tracker mortgages that a significant tax exemption could be announced by the minister last week, yet receive hardly any attention. The announcement has to do with electric cars.
Any time an employer provides money or any other kind of benefit to an employee, a tax liability arises.
While taxing wages is relatively easy, other types of benefit have to be valued for tax purposes.
If an employer provides an employee with the use of a car, that’s treated as a taxable “benefit in kind” by Revenue. Each year up to 30% of the value of the car is treated as if it was additional salary, and the employee is taxed accordingly.
The company car often used to be offered as a benefit. Changes to the rules in recent times have meant that, in many cases, it now costs an employee less to own and run a car themselves rather than avail of the company offering, particularly if they can claim mileage expenses for business trips.
On Budget Day, Finance Minister Paschal Donohoe announced a one-year exemption from benefit in kind on electric cars.
In practice, a one year exemption wouldn’t have been much use as an incentive, but his announcement last Tuesday that the zero rate of benefit in kind tax on electric cars would remain for a minimum of three to five years is probably a game changer.
Coupled with another budget announcement that the recharging of cars on employer premises would also be tax-exempt, this holds out the prospect of completely tax-free motoring, at least from the employee perspective.
It may well turn out to be attractive for employers as well. Payroll is expensive when employer’s PRSI, currently 10.75% of gross wages and due to increase next year, is taken into account.
There are few enough tax-efficient ways to reward employees — pension contributions is probably the best example.
The use of travel cards and the cycle to work scheme, like electric cars, are also targeted at alleviating travel problems but the employee must pay towards them.
Traditionally motoring has been a favourite target when it comes to raising money for the exchequer. Vehicle registration tax, excise duties on road fuels, high rates of Vat, and road taxes all meant that whenever a tax break on motoring was presented in the past, it is avidly availed of.
Lower road taxes on less CO2-emitting engines changed the make-up of the national fleet, and a low rate of VRT at one time meant that twin cabs seemed omnipresent on our roads.
Not all workers are in the fortunate position of being offered the use of an electric car as part of their package, but last week’s announcement will undoubt-edly make it more common. That won’t alleviate traffic congestion. Nor will it necessarily delight all of the motor industry.
That industry benefits from sales, but is also reliant on the number and complexity of moving parts in an internal combustion engine for its market in servicing and repairs. As with any tax change, there are always winners and losers.
Brian Keegan is director of public policy and taxation with Chartered Accountants Ireland
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