Company Car - Tax reliefs

A company can claim certain costs and expenditure against its profits to reduce the amount of tax it pays. One of those deductible costs is the capital expenditure - money a company spends on buying or maintaining cars. However, an important qualification is that there is a limit on the allowable expenditure on a car.

What is a Company car?

Company directors can decide to purchase or lease a range of motor vehicles: cars, vans, trucks and tractors etc. on behalf of the company.

The vehicles in relation to which a limit applies are ordinary motor-cars. The limit does not apply to any vehicle of a type not normally used as a private vehicle and unsuitable to be so used, for example, vans, trucks and tractors. Such vehicles can qualify for unrestricted capital allowances and deductions for lease/hire payments. See more information about Company Vans.

Is full cost of Company car tax-deductible?

When buying a car for a company, you should bear in mind that there is a limit on the allowable expenditure on a car whether purchased outright or via a lease or hire-purchase contract.
The actual cost of a car is generally disregarded for capital allowances purposes and the allowable amount is determined by a car’s level of CO2 emissions in case of both new and second-hand cars.

For income tax purposes, cars are divided into 3 different groups as follows:

Group 1 contains categories A, B and C with CO2 emissions up to and including 155g/km. The allowable expenditure for these cars is currently €24,000 , regardless of the actual cost of the car. Thus, tax allowances are based on deemed expenditure of €24,000 even if the car actually cost less than this amount.
Group 2 contains categories D and E with CO2 emissions from 156g/km up to 190g/km. The allowable expenditure for these cars is €12,000 or 50% of the actual cost of the car, whichever is lower. This
means that cars in this group can get allowances on a maximum
of €12,000 no matter how expensive they are.
Group 3 contains categories F and G with CO2 emissions that exceed 190g/km. These cars get no allowances whatsoever.

The original CO2 emissions figure at manufacture determines the band. A car’s CO2 emissions will have been established when it was registered for VRT purposes and can be verified by checking the IBI system or in the Vehicle Registration Certificate of the car.

How is Car Company Relief given?

The annual rate of wear and tear allowance is 12.5%. This rate writes off the allowable cost of a car evenly over 8 years.

Electric Car tax allowance

The scheme run until 31 December 2020.

Can I use Company car for private trips?

If your employee or company director receive a car for private use your employee must pay Pay As You Earn (PAYE), Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) for that private use.

Travel to and from work is generally considered private use.

You will need to calculate the ‘cash equivalent’ of your employee’s private use of the company car. This is the amount that you will add to your employee's pay as Benefit-In-Kind (BIK) and pay tax on.

The cash equivalent is is based on:

1) a percentage of the Original Market Value (OMV) of the car. Generally, this is the list price of the vehicle, including Value-Added Tax (VAT) and Vehicle Registration Tax (VRT) at the time of first registration, even if you purchased the car second hand.

and

2) the amount of mileage for private and business purposes.

BIK on Company cars

BIK on cars generally works by calculating 30 per cent of the cash value of the car, so, for example, a car worth €30,000 will cost an employee €2,000 a year in tax for lower rate payers, and €5,200 for those on the higher rate.

For the electric cars under €50,000, employees won’t pay any tax though. See more on Electric Company cars tax benefits

Need advice when buying a Company car?

If you require help with your Company car tax allowance, please leave your email address, we will contact you with information you need.

You may also find useful:

Corporation Tax Return - from €120
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