BIK on EVs.

zoom_cool · 16-11-2017 01:41PM

PickYourName wrote: »

As has been quoted already: ""electric vehicle’ means a vehicle that derives its motive power exclusively from an electric motor"

I think I'd struggle to come up with a form of words that could be clearer: your comment is more than a little unfair.

"Motive power" is the power that makes the car move. All hybrids and plug-in hybrids can use their ICE engines to move the car when the battery is empty, so are not included according to the definition.

The range-extender ICE used in the BMW i3 does not use its power to move the car, rather it's used to charge the battery. Hence it is included according to the definition, as motive power is exclusively electric.

The definition is clear and unambiguous and can be applied easily to every car on the market to determine if it is covered or not.

Thanks for clear it up. I will be good to look for a BMW I3 Rex in the new year.

Water John · 16-11-2017 02:37PM

So for a VAT registered company, what would be the net cash price of a 30Kw Leaf or Ioniq? To put bones on this.

BoatMad · 16-11-2017 02:39PM

Water John wrote: »

So for a VAT registered company, what would be the net cash price of a 30Kw Leaf or Ioniq? To put bones on this.

You can't claim VAT back for a non commercial vehicle, and by the way , does the SEAI purchase incentive grant of 5k, apply to companies ??. I would argue it shouldn't

PickYourName · 16-11-2017 03:36PM

Water John wrote: »

So for a VAT registered company, what would be the net cash price of a 30Kw Leaf or Ioniq? To put bones on this.

Net price is same as actual price, same as anyone else pays.

The benefit - which is potentially huge - is in the zero BIK paid by the employee.

Taking the simplest example:

Case 1: Company pays employee a bonus of €60k (lucky employee!). Employee is on higher rate of tax, so roughly half of this goes in tax (the actual marginal rate is close enough to 50%), and they use the €30k to buy a car. So, to put the employee in a new car costing €30k has cost their cmployer €60k.

Case 2: Company buys a car for €30k and gives it to employee for their full-time use. Right now, the employee will pay BIK tax on it, which assuming there's no actual business mileage works out pretty much the same as case 1: the employee will have to earn €30k more to pay for the BIK tax. So, to put the employee in a new car has still cost their cmployer €60k (€30k for the car, and €30k gross income to enable to employee to pay the tax on the BIK).

Case 3: From next year. company buys an electric car for €30k and gives it to employee for their full-time use. Employee gets the car, but has no further tax to pay.

Note: I've assumed the car is kept for 3 years. Also, I'm well aware that in practice, company cars are more likely to be leased. However, the net results are pretty much the same regardless of how it is structured: you can't escape the marginal tax rate (which is roughly 50% for people on average wages).

The BIK concession is very large for those who can avail of it. Personally, I think once this is widely recognised it will definitely achieve the objective of kick starting a much larger market for EVs.

Water John · 16-11-2017 03:43PM

Worker gets an EV car, not a 60K bonus. And, they can run it for peanuts.

Has real game changing potential. Now put a fast chargers in every town about 20 miles apart. Don't mind if they charge a reasonable fee for the leccie.

BoatMad · 16-11-2017 03:53PM

Water John wrote: »

Worker gets an EV car, not a 60K bonus. And, they can run it for peanuts.

Has real game changing potential. Now put a fast chargers in every town about 20 miles apart. Don't mind if they charge a reasonable fee for the leccie.

There are two major fallacies

Companies owning large fleets of cars , has implications for balance sheets, corporation tax and lending issues.

Secondly many workers don't want or cant afford a new car , they want income instead.

The net effect will be muted and will only apply to companies where policy was to offer a company car anyway. BIK never had implications for a company.

The community that will benefit will be largely those availing of low business mile perk company cars , which till now they may have run their own on mileage allowances.

Hence small company proprietary directors and large company executives that already have company car " allotments " as part of their contract and perks of their grade, the repmobile will largely remain ice for now

Note the situation for the company is identical as before , company buys car for 30 k and is available to the employee. It never cost the company 60k in any scenario.

PickYourName · 16-11-2017 03:56PM

Water John wrote: »

Worker gets an EV car, not a 60K bonus. And, they can run it for peanuts.

Exactly, the case 1 and case 2 examples were to show the comparison with non-EV cars. It's not imediately obvious without expressing it in the form of the examples, but for most people the benefit of the concession is equal to the cost of the car.

BoatMad · 16-11-2017 04:02PM

PickYourName wrote: »

Exactly, the case 1 and case 2 examples were to show the comparison with non-EV cars. It's not imediately obvious without expressing it in the form of the examples, but for most people the benefit of the concession is equal to the cost of the car.

Companies paying bonus do not substitute these for company cars. Firstly in the 60 k bonus , you own the resulting net asset , free to do what you like

You do not own a company car and you derive no residual value from it.

It's not as simple a corporate decision as you think

PickYourName · 16-11-2017 04:09PM

BoatMad wrote: »

Note the situation for the company is identical as before , company buys car for 30 k and is available to the employee. It never cost the company 60k in any scenario.

I understand that, but it's not what I was saying.

To try and state it more clearly:

If Joe Soap wants to buy a car for €30k, they have to earn about €60k, assuming a marginal tax rate of 50%. You could argue that it should be at their total tax rate rather than the marginal one, which is why I used the term "bonus" in the example: something on top of what they already have. So, the company has to pay out €60k to put Joe in the €30k car.

Now, from next year, for an EV, the company has to pay out half that to have Joe Soap sitting in the same €30k car.

I'd agree with you that it is mostly owner managers who will benefit from this, rather than those using company cars for actual business use, where it will have much less of an impact. However, there are very large numbers of these. Most would never even have considered company cars before now, as they don't make much financial sense with the current BIK regime. It is precisely those people who will view the concession in the terms I describe: they can all of a sudden save the cost of a new car.

PickYourName · 16-11-2017 04:13PM

BoatMad wrote: »

Companies paying bonus do not substitute these for company cars. Firstly in the 60 k bonus , you own the resulting net asset , free to do what you like

You do not own a company car and you derive no residual value from it.

It's not as simple a corporate decision as you think

It is if you're the owner of the company you work for and you'd like a new car: it's a no brainer.

grogi · 16-11-2017 04:13PM

PickYourName wrote: »

I understand that, but it's not what I was saying.

To try and state it more clearly

Let's put it in simple words:

Joe earns €60k gross. He can:
- get €30k cash
- or get €15k cash (50% of €30k) and an EV worth €30k.

I am not sure though if the BIK exemption applies when the ownership of the asset is transferred, or only when ownership of the vehicle remains within the company, but it is used for private purposes.

PickYourName · 16-11-2017 04:29PM

grogi wrote: »

Let's put it in simple words:

Joe earns €60k gross. He can:
- get €30k cash
- or get €15k cash (50% of €30k) and an EV worth €30k.

That's another way of looking at it OK, but it's not the calculation most would do.

The person this most affects is the owner manager who does next to no business mileage.

Their thinking will be along the lines of the following:

Say they earn €70k, but there's a €100k sitting in the company. This is a very common scenario: owner managers paying thelselves less than they could otherwise do because they don't like the fact half of it goes to Revenue.

They want a new car. From next year, they can buy a €30k EV and it will cost the company €30k.

Or, they could buy a non-EV €30k car, but it will cost the company twice that (€30k for the car, and an extra roughly €10k/annum over three years to pay for the BIK tax that will be owed). If they keep the car longer than three years, it'll cost them even more.

There are many, many people who will do this calculation and come to the same conclusion: this is a huge concession.

BoatMad · 16-11-2017 04:30PM

PickYourName wrote: »

I understand that, but it's not what I was saying.

To try and state it more clearly:

If Joe Soap wants to buy a car for €30k, they have to earn about €60k, assuming a marginal tax rate of 50%. You could argue that it should be at their total tax rate rather than the marginal one, which is why I used the term "bonus" in the example: something on top of what they already have. So, the company has to pay out €60k to put Joe in the €30k car.

Now, from next year, for an EV, the company has to pay out half that to have Joe Soap sitting in the same €30k car.

I'd agree with you that it is mostly owner managers who will benefit from this, rather than those using company cars for actual business use, where it will have much less of an impact. However, there are very large numbers of these. Most would never even have considered company cars before now, as they don't make much financial sense with the current BIK regime. It is precisely those people who will view the concession in the terms I describe: they can all of a sudden save the cost of a new car.

Your example really only applies to small company owners. Where essentially they can split salary against company costs.

These are the majority benefit from this concession. So assuming the company can afford the car it is now a significant tax benefit.

There goes the commercial jeep market .... poof

My local dealer already has his demo leaf plastered with big 0% BIK messages in anticipation

grogi · 16-11-2017 04:32PM

PickYourName wrote: »

Say they earn €70k, but there's a €100k sitting in the company. This is a very common scenario: owner managers paying thelselves less than they could otherwise do because they don't like the fact half of it goes to Revenue.

If money stays within the business, corporate tax must be paid on that. It is much more common practice to pump it towards a pension plan, that could be accessed when needed (and relevant taxes paid at that moment).

PickYourName · 16-11-2017 04:32PM

grogi wrote: »

I am not sure though if the BIK exemption applies when the ownership of the asset is transferred, or only when ownership of the vehicle remains within the company, but it is used for private purposes.

It's only BIK if the asset remains with the company.

If the concession is removed at the end of three years, there are a few options:

- company sells the car, and it all comes to an end.
- company sells the car to the employee at its then market value (paid for out of taxed income)

In practice, however, the car is likely to be leased, and it's never actually owned by either the company or employee.

PickYourName · 16-11-2017 04:40PM

grogi wrote: »

If money stays within the business, corporate tax must be paid on that. It is much more common practice to pump it towards a pension plan, that could be accessed when needed (and relevant taxes paid at that moment).

Known, understood and agreed.

This isn't necessarily what people want to do, though: check out all the queries around "how do I get profits out of a company without paying tax?" on here and elsewhere.

grogi · 16-11-2017 04:50PM

PickYourName wrote: »

Known, understood and agreed.

This isn't necessarily what people want to do, though: check out all the queries around "how do I get profits out of a company without paying tax?" on here and elsewhere.

People, in general, don't want to pay taxes...

slicedpanman · 16-11-2017 09:41PM

Ok guys I'm one of those small company owners (myself and the missus company directors in 2 person self employed co) possibly in the market for a car next year...

I really get the point of spending 30k on a car and effectively costing 15k to us. What I'm interested in is after 3 years (assuming bik is gone for all 3) what's the tax/cost implications of selling the car to ourselves?

Assuming it will have to be a realistic market value after 3 years? What kind of depreciation would be allowed/acceptable?

Also on tax/insurance for the company car... as owned by co does co have to pay tax/insurance/servicing?

If I lost 3 years of insurance in my own name I'd have to factor that into calculations.

Intention is to buy a car (new or second hand) and keep it for 10+ years

air · 16-11-2017 09:49PM

I don't see any issue registering the vehicle in the name of a director so long as all the accounts are in order.

If you dispose of it (to yourself or someone else) after 3 years you'll be liable for corporation tax on the remaining value that year.

slicedpanman · 16-11-2017 10:29PM

air wrote: »

I don't see any issue registering the vehicle in the name of a director so long as all the accounts are in order.

If you dispose of it (to yourself or someone else) after 3 years you'll be liable for corporation tax on the remaining value that year.

Walking through the figures then;
Let's say 30k out of the co, co pays tax and maintenance for 3 years then sells car to me.
Reasonable 50% depreciation after 3 years, so I put 15k back into my co and take ownership of car.

But I need to pay CT out of co on remaining value: what's remaining value in that case? 15k? And what rate of CT? 12.5%? Or the 25% non trading rate?

air · 16-11-2017 10:46PM

12.5% of the 15k or whatever you sell it for I would say. Not familiar with the "non trading rate" and not a taxation professional!

Water John · 16-11-2017 10:55PM

I presume, unless the Govn't cancel this BIK that you can keep going with it in the Co or the Co can trade it in against an upgrade?

air · 16-11-2017 11:34PM

Of course, you'll just have to pay BIK if it becomes liable for it.

grogi · 17-11-2017 12:14AM

slicedpanman wrote: »

Walking through the figures then;
Let's say 30k out of the co, co pays tax and maintenance for 3 years then sells car to me.
Reasonable 50% depreciation after 3 years, so I put 15k back into my co and take ownership of car.

But I need to pay CT out of co on remaining value: what's remaining value in that case? 15k? And what rate of CT? 12.5%? Or the 25% non trading rate?

Pay yourself the money as the salary.

air · 17-11-2017 12:34AM

Yeah, obviously you can just pay the PAYE/PRSI on the 15k and the car is yours (personally).

PickYourName · 17-11-2017 04:53AM

slicedpanman wrote: »

Walking through the figures then;
Let's say 30k out of the co, co pays tax and maintenance for 3 years then sells car to me.
Reasonable 50% depreciation after 3 years, so I put 15k back into my co and take ownership of car.

But I need to pay CT out of co on remaining value: what's remaining value in that case? 15k? And what rate of CT? 12.5%? Or the 25% non trading rate?

I think best to speak to your accountant on this - it's something of a minefield, and not one for speculation by non-experts (me included!).

I do think though that this is one case where a PCP makes complete sense, both from the point of view of cash management and the flexibility it offers.

You can decide at the end of the three years what to do next (BIK may be changed for example), and there's no arguing over the residual value of the car. You could just hand the car back, or have the company pay the balance, or you personally purchase (out of taxed income).

I'd definitely take professional advice on it, though, especially on the treatment of other related costs (car tax, insurance, maintenance etc.). I'm not sure if a PCP is considered a lease with a purchase option, for example. If it is, there may be some element of VAT that is claimable. You should also check the rules (if any) around who the car is registered to, as this can affect insurance.

BoatMad · 17-11-2017 05:03AM

A company car cannot be registered in the name of a director. That's makes it a personal car.

Insurance would be taken out by the company in the normal way , it is typically somewhat more expensive then a purely private insurance.

Note that for a BEV you can also avail of 100 % capital allowance Which allows you to write off the cost of the car against corporate tax, something that isnt possible for a ICE company car.

Typically if at the end of the period , you want to transfer the car to the employee , the cost is typically the book value and the employee pays that to the company.

Where significant differences exist between the market value and the book value , revenue have a provision to claw back tax from the employee , but in practice it rarely happens unless it looks contrived.

BoatMad · 17-11-2017 05:09AM

slicedpanman wrote: »

Walking through the figures then;
Let's say 30k out of the co, co pays tax and maintenance for 3 years then sells car to me.
Reasonable 50% depreciation after 3 years, so I put 15k back into my co and take ownership of car.

But I need to pay CT out of co on remaining value: what's remaining value in that case? 15k? And what rate of CT? 12.5%? Or the 25% non trading rate?

If it's a low emmisuons vehicle , the company can claim 100% capital allowances, hence avoiding any CT issues

If the car is " sold" to you at the end , al, that happens is the employee pays for it from taxed income. If you the company give yourself ( the employee ) the car for no consideration , then in effect income tax at the appropriate rate must be deducted from the employees salary equivalent as if you gave that employee the cash equivalent of the book value of the car

BoatMad · 17-11-2017 05:19AM

slicedpanman wrote: »

Ok guys I'm one of those small company owners (myself and the missus company directors in 2 person self employed co) possibly in the market for a car next year...

I really get the point of spending 30k on a car and effectively costing 15k to us. What I'm interested in is after 3 years (assuming bik is gone for all 3) what's the tax/cost implications of selling the car to ourselves?

Assuming it will have to be a realistic market value after 3 years? What kind of depreciation would be allowed/acceptable?

Also on tax/insurance for the company car... as owned by co does co have to pay tax/insurance/servicing?

If I lost 3 years of insurance in my own name I'd have to factor that into calculations.

Intention is to buy a car (new or second hand) and keep it for 10+ years

It makes no sense to have you as the employee pay for servicing etc , as this will in effect be done out of net salary.

The usual situation is the user of the car pays zero towards any aspect of the costs.

Yes you will loose the benefit of personal insurance and you may find company car insurance is more expensive , but the tax benefits will make it all worth while

air · 18-11-2017 02:29AM

The 100% CT allowance can be claimed on the purchase but CT will still have to be paid on the remaining value if it is ever disposed of. Otherwise you could buy a car, claim the credit and dispose of it immediately, having paid no tax on the purchase price - which wouldn't make much sense obviously.

BIK on EVs.

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