CONSUMER DESK: The company car used to be the dream of most employees. But, reports John Cradden, the taxman has changed all that. Increasingly, companies are moving to other ways of providing a transport carrot
The grip of the company car on the Irish motor market shows no signs of relaxing, even with the fall in new car sales over the past year or two. It's estimated that a staggering 40 per cent of all new cars sold every year are company cars, according to the Society of the Motor Industry (SIMI).
However, the days when it was hard to resist the offer of a shiny new company car as part of a salary package are well and truly over. While a company car is still an attractive and desirable perk, growing numbers of employees and executives are seeking out alternatives.
"No matter how much your company car is worth, you will lose out," said Niall Benson, managing director of recruitment firm Contract People and author of How Much Does Your Company Car Really Cost?
While most company cars are bought for employees who depend on them for work, many are surprised when they find out how much this so-called perk will cost them each year, particularly if they do a low mileage. "The biggest shock is when they get their tax-free allowance showing a reduction because of BIK," said Benson.
If you have a company car, the BIK (benefit-in-kind) tax is calculated at 30 per cent of the original market value (OMV) of a car, which includes Vehicle Registration Tax (VRT).
So for the user of a typical Ford Mondeo priced at €25,000, the BIK is €7,500. The Revenue Commissioners treat this amount as additional annual income for any employee who uses the car privately. As most company car drivers are in the 42 per cent tax bracket, they will pay €3,150 in income tax - if they do less than 15,000 business miles a year.
There are ways of reducing the BIK bill, such as paying for your own fuel, insurance, servicing and repairs and road tax. In theory, you can reduce the taxable burden to 18.5 per cent by doing all of these things. However, Benson estimates that the outlay required in order to achieve this BIK reduction is invariably more than what you will save.
There are two types of BIK system. Under the first system, the more miles you do, the less you pay. If the company car user does more than 15,000 work-related miles per year, the tax is reduced on a sliding scale up to 30,000 miles, to a maximum of 75 per cent.
Under the second system, which is more suitable for drivers working in Dublin, a 20 per cent reduction in the tax is allowed if you can prove that 70 per cent or more of working time is spent away from the place of work and between 5,000 and 20,000 business miles are travelled a year.
At the end of the day, growing numbers of motorists are choosing to forgo company cars in favour of some form of company allowance towards the cost of buying or running their own car, according to Dave Kavanagh, managing director Venson Fleet Solutions.
More fleet companies such as Venson are expanding their services to cater for this demand. "We can supply access to a wide range of vehicles more quickly because we have access to a wide dealer network," says Kavanagh. It can also provide a maintenance contract for the vehicle that will extend beyond its normal service guarantee.
For those who depend on a company car, motoring organisations say that some elements of the current tax regime are unfair. Conor Faughnan of the AA points out that the BIK system doesn't take account of depreciation - this means that, after three years, a user is still paying tax on the value of the car when new.
Cyril McHugh of SIMI would like to see the 30 per cent rate reduced to 20 per cent and the VRT element of the price excluded when calculating the BIK. "For the people who are doing vast numbers of miles around the country," he says, "it's important they should have some degree of comfort."
However, Benson of Contract People says there are plenty of ways in which companies can work the current tax system to their advantage. For example, companies with offices in Dublin and throughout the country can pool the mileage of all its companies and divide it by the number of cars they have. This means that the BIK penalty incurred by Dublin-based sales reps who do low mileages can be offset by the reps who register huge mileages criss-crossing the country.
Perhaps "green" motor taxes are the way forward? The British government has just implemented a new system of company car tax based on carbon dioxide emissions. The idea is to encourage the use of smaller, more economical and greener cars as company vehicles.
So far, there has been no hint that such a green tax regime could (or should) be adopted here. It has been suggested that increases in company car taxation be included as part of fiscal incentives to encourage more users, particularly in Dublin, to use quality public transport alternatives when they become available over the next few years.
However, such taxation would be difficult to enforce, says Conor McCarthy, chairman of the Dublin Transportation Office: "The principal change would be in the reduction of all-day parking spaces in the city centre."
If you are a car enthusiast and do not depend on a car for work, you could do what software company director Joe Conway has done - get your firm to buy a classic car as a company car perk. If you buy a classic car, you can virtually eliminate your BIK bill.
Since BIK is calculated at the original cost of the car when new, Conway pays only about €600 in tax on his classic Porsche 911 because it cost only about €5,000 when new - in 1970.
You can request a free copy of the current Contract People guide - How Much Does Your Company Car Really Cost? - by ringing 01-450 8881