Company Car Tax
/ˈkʌmpəni kɑː tæks/
Company Car Tax is the tax levied on employees and directors when they receive a company car for private use, calculated based on the vehicle's value, CO2 emissions, and business mileage percentages.
Company Car Tax is the tax levied on employees and directors when they receive a company car for private use, calculated based on the vehicle's value, CO2 emissions, and business mileage percentages.
Company Car Tax is a specific type of Benefit in Kind (BIK) taxation that applies when your company provides a vehicle to an employee or director for private use. In Ireland, this tax is calculated based on the car's original market value, its CO2 emissions, and the percentage of business mileage driven annually. The taxable benefit is then added to the individual's income and subject to Income Tax, PRSI, and USC through the payroll system.
This tax ensures that employees who receive the "perk" of a company car are taxed fairly on its value, similar to how cash income would be treated. The amount of Company Car Tax payable can vary significantly depending on the type of vehicle, with electric vehicles typically attracting much lower tax rates to encourage environmentally friendly choices. For directors and employees, understanding Company Car Tax is crucial for making informed decisions about company vehicle arrangements and their personal tax liabilities.
For business owners, Company Car Tax calculations form part of your company's compliance obligations. You must accurately report and deduct these amounts through PAYE, which impacts both your employees' net pay and your company's administrative workload. Proper management of Company Car Tax helps avoid potential Revenue investigations and ensures your financial statements reflect all employment benefits correctly.
Company Car Tax is calculated using a specific formula based on the car's original market value (OMV) and its CO2 emissions. The OMV serves as the starting point, and then a percentage is applied based on the car's emissions category. For 2024, electric vehicles benefit from a 0% charge on the first €50,000 of OMV, making them highly tax-efficient options for company car users.
The calculation considers both business and private mileage, with the percentage increasing if private use exceeds certain thresholds. For traditional petrol and diesel vehicles, the rate can range from 12.5% to 37.5% of the OMV, depending on emissions. This percentage is then multiplied by the OMV to determine the taxable benefit, which is added to the employee's gross income for tax purposes through the PAYE system.
Private use includes any journeys not directly related to business activities, such as commuting from home to work, personal shopping trips, holidays, or family outings. Even occasional private use triggers the full Company Car Tax liability, unless the vehicle is strictly for business purposes only and never used privately. Revenue requires detailed mileage logs to substantiate any claims of 100% business use.
The employee or director who has private use of the company car is responsible for paying the Company Car Tax. However, the company must calculate the benefit value, include it in payroll, and deduct the appropriate Income Tax, PRSI, and USC through the PAYE system. This ensures the tax is collected efficiently and accurately throughout the tax year.
Yes, if you pay your employer for all private fuel used, you can reduce the Company Car Tax benefit. However, you must make a formal fuel contribution through payroll deductions, and it must cover the full cost of private fuel based on Revenue's advisory rates. Simply paying occasional amounts at the petrol station won't satisfy Revenue's requirements for reducing the tax liability.
Electric vehicles receive significant Company Car Tax advantages under current Irish tax policy to promote environmental sustainability. For 2024, electric cars benefit from a 0% tax rate on the first €50,000 of original market value, with only the balance above this threshold taxed at 17.5%. This makes electric company cars substantially more tax-efficient than their petrol or diesel counterparts.
These preferential rates apply to battery electric vehicles (BEVs) only, not to hybrid vehicles. The tax advantages are scheduled to continue until at least 2025, though policy may evolve beyond that date. When calculating Company Car Tax for electric vehicles, you must also consider the environmental benefit and potential tax relief available through other schemes.
You must maintain detailed records including the car's purchase invoice showing OMV, CO2 emissions certificate, and comprehensive mileage logs distinguishing between business and private travel. These records should be kept for six years as Revenue may audit Company Car Tax calculations during compliance checks. Failure to maintain proper records could result in estimated assessments and potential tax interest charges.
Yes, your company can claim capital allowances on the purchase cost of a company car, but these allowances are restricted based on the car's CO2 emissions. Electric vehicles qualify for 100% first-year allowances, whilst higher-emission vehicles receive reduced rates. This creates a balancing act between the Company Car Tax cost to employees and the capital allowance benefit to the company.
Company Car Tax doesn't directly appear on your corporation tax CT1 Return, but the company's ability to claim capital allowances on the vehicle does. However, you must ensure that all Company Car Tax liabilities are correctly accounted for in payroll and reported to Revenue through the PAYE system, as these form part of your overall tax compliance obligations.
