BIK Information
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The Old BIK system simply took 30% of the market value of your car (when purchased) and discounted that figure by various percentages according to mileage (which had 15 Mileage bands). That final figure was then deduced from your Tax Free Allowance by the revenue commissioners. This had the effect of making you pay tax sooner than if you did not have a car and so the net effect was you paid 20% Tax on your BIK figure (42% if you are on the higher level of tax.) and PRSI was not deducted.
The new system still uses the 30% calculation of the car but has removed 10 of the mileage bands so now you have only 5 for calculating discounts. It does not interfere with your tax-free allowance and instead the BIK is now deemed to be a form of earnings (Notional Earnings) and it is added to your salary weekly for the sole purposes of calculating Tax and PRSI. That added notional pay is then taken away from you as soon as your PAYE and PRSI liability is calculated. The net effect is that you now pay 6% (PRSI amount) more BIK than the previous system and the company pays 10.75% PRSI on that Notional Earnings.
The new system is based on your retail price of the car and your mileage.
The System is as follows:
1. The first figure that you get is the BIK liability which is 30% of the retail price of the car:
EG. Car is valued: €25000 euros
Liability 30% €7500 euros.
2. Next you discount that liability of 7500 euros figure by various percentages depending on Kilometres travelled. to get what is now called your Notional Earnings. The yearly Kilometres are calculated by deducting 8047 Kilometres from your total Kilometres (Private and Business) as this 8047 Kilometres is what the revenue commissioners will assume is your private usage. So if you travelled 800 Kilometres in the week the assumption is that your yearly usage is 800 multiplied by 52 working weeks less 8047 personal Kilometres. Because most people do not use the car during holidays it is now to your advantage to allow the company use your car while on holidays so as to keep the usage up to the max discount levels.
3. There is one exception to the rule of the kilometres usage discounts which will effect ALL OF YOU travelling below 21140 Kilometres and that is if you have a company car and you spend 70% or more away from your work place office then the revenue commissioners will allow you in to the first discount bracket i.e. 20% discount (marked with the asterisk.)
4. The annual liability or notional earnings as calculated above is then divided by 52 and then fed in to your pay roll on a weekly basis (as if you had actually earned it) where you pay tax on it at your current level and PRSI. This additional notional earnings is then deducted so that you do not get the earnings but you do pay tax and PRSI.
The notional earnings amount (BIK) will appear on your payslip as if you had earned this amount for tax and PRSI calculations and it is deducted again to remove it from earnings.
