Are you still driving your employer's car?

Driving your employer’s car is fun but may give rise to a taxable benefit in kind (BIK)!!! As Benefits in kind represent ‘employment income’ they do receive exactly the same tax treatment as salaries and are therefore subject to PAYE and as from 01/03/2019 to NHS contributions.

Car benefits arise when motor vehicles of whatever type (saloon or commercial) owned/leased by employers are made available to employees for private use

An element of private use exists when the car is:

• placed at the disposal of one particular person or
• available for use outside normal working hours; or
• not kept at employers’ premises overnight or during the weekends; or
• regularly used for private purposes.

Any exemptions?

• Employees who are required to use cars owned or leased by the employer in the normal performance of their duties are NOT considered to enjoy any BIK.
• It is though not permitted for such employees to use the vehicle outside working hours
• Such employees are those individuals employed as drivers, messengers, distributors.

How to calculate it?

The 'Annual value of a car’s benefit' (VoB) is the aggregation of the following three (3) components as adjusted to account for the private use of the car (%):

a) the car use value

b) the repairs and maintenance value

c) the fuel value

Components b) and c) could be seen as the monetary measurement of the employee’s benefit-saving- for not having to use his own car, for not having to pay for such expenses as R&M and fuel.

One though, could reasonably argue the older the car the lesser would have been the benefit. That’s true!!! The age of the car couldn’t be left out in determining the car's benefit. The car’s age is taken into account in calculating component a) of the formula; the car’s use value.

The total of the three (a)+(b)+(c) would have been the max taxable benefit had the employee been driving the car 100% for private purposes. As this is not always the case, in order to find the private use of the car, (a)+(b)+(c) had to be multiplied by the car’s private use (%) which is dependent on the value of the car. (see table below)

All the above could be put together and expressed mathematically in the following manner:

The Components of the formula:

a) Car’s use value

The car use value depends on the age of the car. The older the car the less the use value. The car’ use value is:

• 17% of the car’s value when car<6 years
• 8% of the car’s value if car >6 years

b) Repairs and maintenance value

This value represents the cost of car insurance, maintenance, annual road tax etc. and is calculated as a % of the car value as follows:

• 3% x car value, if car value=<€28.000
• 4% x car value, if car value > 28.000

c) Fuel value

This value represents the cost of the fuel when paid by the employer and is calculated as a % of the car value as follows:

• 3% x car value, if car’s value =<€28.000
• 5% x car value, if car value > 28.000

It could be argued that this element of the formula is outdated as it does not take into account how the car runs or the car’s CO2 emissions. For example, electric cars’ fuel value will be lower than cars’ fuel value running solely on diesel. As green taxation initiatives will be making the switch to a cleaner energy the formula will sooner or later be adapted in this direction.

Private use of the car (%)

This % is dependent on the value of the car as follows:

• Tax Office’s perception is that private use (%) of a car ranges from 30% to a max of 60% depending on the car's value.
• The private use % of the car may drop to 20% if the car is used only for a journey between two locations;
• A journey between two locations is considered to exist when the car is primarily used for business purposes;

Car value (‘cost’)

As you’ve noticed above the ‘car value’ is quite an important determinant of the 'benefit' as all the components of the formula derive their value from there.

The higher the ‘car value’ the higher will be ‘Value of the benefit’

The ‘car value’ (‘cost’) is actually how much it would have costed someone to buy the car brand new. In brief, it includes what accountants mean when saying ‘all expenditure incurred in bringing the asset=car to its present location and condition’ i.e. purchase cost, customs, transportation, insurance, registration costs etc.

More information about 'benefits' may be found in the Information Leaflet ‘Benefits in kind’ issued by the Tax Office that is available on their main website.

https://www.mof.gov.cy/mof/tax/taxdep.nsf/ced23_en/ced23_en?opendocument

You may also find useful our tool for estimating your car’s benefit.

https://boocx.us.aldryn.io/en/bik-cars/

Take care