Senior civil servants have suggested introducing an incentive for electric cars in the October budget by exempting them from “benefit-in-kind” tax. If implemented, the move will save many motorists thousands of euros a year if they switch to an electric model.
Benefit-in-kind tax is paid by all employees who have company cars. The Department of Finance tax strategy group, which advises on the budget, has suggested a new 0% rate for electric models.
Assuming that this incentivised the purchase of 5,000 Nissan Leafs, one of the most popular electric cars, the cost to the exchequer in the first year would be up to €20m. This would be in addition to existing grants and vehicle registration tax relief for electric vehicles, and lost revenue from fuel excise.
Barry Maxwell, a chartered accountant at C Maxwell & Associates, calculated that waiving benefit-in-kind for electric vehicles would save a driver of a Renault Zoe, one of the cheaper electric cars, up to €3,240 a year in tax or €270 a month. This would be the saving for an employee earning between €33,800 and €70,044 and driving less than 24,000km for business purposes each year, assuming the employee still paid pay-related social insurance on the benefit.
Benefit-in-kind for company cars is calculated based on the original market value of the car and on the number of kilometres driven for business purposes.
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The Zoe costs about €24,000 once existing grants and vehicle registration tax relief for electric vehicles are taken into account. For a more expensive electric car, such as the BMW i3, for which prices start at €41,330, the potential annual saving including grants would be €5,580 a year.
In the national climate plan published last month, the government pledged that by 2030 all cars and vans sold in Ireland would be zero-emission.
Joe McCarthy, a committee member of the Irish Electric Vehicle Owners Association, said the government must also remove obstacles to the uptake of electrics as company cars, such as the requirement to pay benefit-in-kind tax for using company-provided chargers. This requires companies to install expensive measurement technology on their chargers and creates an administrative headache, he said.
John Farrell, commercial director of the AA, said: “Electric vehicles have a big future in Ireland but at present it is a struggle to persuade people to buy one. A zero-rate [benefit-in-kind] could well give the market a good push which would be useful.
“We know from research by the AA that cost is a major factor which puts people off buying an electric vehicle. A measure which reduces the tax implication for someone receiving a company car will greatly reduce the price concerns many motorists have.”
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He added that the government should consider other measures such as a scrappage scheme for diesel drivers switching to electric cars, and additional investment in chargers on garage forecourts.
Changes were introduced in the 2008 Finance Act to base benefit-in-kind tax for company cars on CO2 emissions but these were never brought into force because of the recession.
The finance department’s tax strategy group said last week that now would be a good time to bring this legislation into force, possibly with separate provisions for electric cars.
The officials noted that “electric vehicles receive favourable benefit-in-kind treatment in a number of other countries, such as the UK, France and Germany”.