THE GOVERNMENT IS reducing the amount of income tax that employees using a company car will be liable to pay for all except the heaviest-emitting vehicles.

The benefit-in-kind system for company vehicles calculates the amount of income tax liability an employee must pay based on the original market value, the amount of business mileage it racks up and how polluting the vehicle is.

Vehicles are classified into categories from A to E depending on their emissions. Those that produce fewer emissions (closer to category A), especially electric vehicles, are liable for less tax than ones that produce more emissions (closer to category E) and thus have a worse impact on the environment.

A relief of €10,000 is set to be applied to the original market value of vehicles in categories A, B, C and D to reduce the amount of income tax that an employee is required to pay for its use.

The move is part of the government’s Finance Bill 2023, which is set to be published in the coming days.

A government statement said that “while the move to a C02-based benefit-in-kind system, which incentivises the use of electric vehicles and lower emission cars, is an important element of achieving our climate targets”, it observed that a “significant number” of employees with vehicles “in the typical emissions range experienced large increases in their income tax liabilities since the start of 2023″.

“To address the issue, the Minister for Finance has received agreement from his Government colleagues to introduce a relief of €10,000 to be applied to the original market value of cars in Category A-D in order to reduce the amount of benefit-in-kind payable (this is not applicable to cars in Category E),” the statement said.

“In effect, this means that, for the purposes of calculating BIK liability, employers may reduce the OMV by €10,000.”

For electric vehicles, the €10,000 reduction on the original market value will be in addition to an existing relief of €35,000 that is already available for EVs, bringing the total relief for 2023 to €45,000.

The change is being applied retrospectively from 1 January and is expected to be in place until the end of the year.