Changes in the tax regime in recent years have made the option of driving a company car less attractive. This is particularly so for drivers clocking up relatively low mileage, writes Ian Noctor.
As with all the Revenue Commissioners' tax compliance initiatives, the rules governing the use of a company car are relatively watertight. However, a loophole may exist which could be of benefit to both companies and their employees, by driving a classic as your company car.
In the eyes of the tax man, driving a company vehicle is a perk and as such it's subject to a tax known as Benefit-in-Kind (BIK). Whatever figure the Revenue deems to be the Benefit-In-Kind to you of having the car, that amount is liable to income tax.
By its own definition, the Revenue says: "The Benefit-in-Kind on a car, made available by an employer for an employee's private use, is 30 per cent of the original market value of the car, where the employer also pays for all the normal running costs. The original market value is the cost of the car when purchased new."
Porsche Ireland says the original market value of the 1970 Porsche 911s pictured was about £5,500 or €7,000, when it rolled off the production line in Stuttgart 33 years ago. Which means the BIK is 30 per cent of €7,000, which is €2,100 per year. On a new €20,000 car, tax is payable on €6,000.
However, if the employee pays any of the following costs, the 30 per cent BIK is further reduced:
You may choose to foot your own insurance bill. Most insurers of classic cars in Ireland will only give a cheap premium if the classic is the second car on your insurance policy with them. To avail of the lower quote, a mileage per year limit has to be agreed. The more miles per year driven, the more you pay.
BIK is reduced by 3 per cent from the original 30 per cent if the employee pays for their own insurance. In the case of the Porsche, that represents a reduction in the tax bill of about €210 per year. The minimum insurance quote is likely to be over €400. So get the boss to pay.
If you pay your own fuel costs the tax bill is reduced by a further 4.5 per cent. One of the gripes of many company car drivers, particularly those for whom the car is more of a perk than a workhorse, is that low mileage means the benefit of the employer paying for the fuel is more than wiped out by the higher tax burden. However, with a classic car it's more tax-efficient for the driver if the employer pays for the petrol.
For insurance and practical reasons it's unlikely the classic car will be driven more than five thousand miles a year. At 20 miles to the gallon of Lead Replacement Fuel, the annual fuel bill for the Porsche will be about €1,000. But the tax reduction, if you pay for your own fuel, is 4.5 per cent of the original value of the car - €315.
Footing the bill for servicing and repairs on your classic company car will reduce BIK by another 3 per cent. In reality this is not a good idea. Classic cars require far more servicing and attention than modern cars, and are far more likely to require repairs and new parts. For this reason, if you can, have your company pay for this element and pay the extra €210 a year in BIK.
Road tax on cars over 30 years old is about €40 per year. The BIK reduction if you choose to pay it yourself is 1 per cent, which in the case of the €7,000 is €70, so let the company pay and take the hit.
If an employee pays all of these running costs, the BIK tax is 18.5 per cent of the original market value of the car - 30 per cent less 4.5+3+3+1 per cent.
However, in the case of a classic, it makes financial sense to pay for insurance, petrol and tax and let the boss pick up the tab for servicing and repairs.
The benefits of driving a classic car as a company car do not extend just to the employee. From the company's perspective it makes economic sense too.
With modern company cars, depreciation halves the value of the car in three to four years. So €20,000 spent on a Ford Focus or a VW Golf will be worth only €10,000 when it's time to sell the car on.
Classic cars, on the other hand, retain their value in real terms over the three years, and could appreciate. The cost of servicing and repairs on a new car are not reflected in the price attained when it's sold on, but money invested in keeping a classic on the road will ensure it finds a new home.
Finally, if you can't find the classic car you want here in Ireland and want to import it, you'll be happy to know you don't have to be concerned with Vehicle Registration Tax. All cars over 30 years are exempt from VRT.
For more detail see the Classic Cars Ireland website or call Paul Kanters on 0402 37137 or 087 244 3877.