When you run a business in Ireland, understanding commercial vehicle tax is crucial across industries, including fast-growing sectors like e-commerce, where delivery and logistics vehicles play a key role. However, the reality is stark: it rarely makes financial sense for companies to purchase non-commercial vehicles for employees due to Benefit in Kind (BIK) tax implications.
This guide covers the essentials of commercial vehicle tax and how it differs from passenger vehicle taxation, the limited exceptions to this rule, and smarter alternatives for your business.
The Bottom Line: Why Company Cars Usually Don’t Make Sense
Before getting into the details, let’s establish the fundamental truth about company vehicles in Ireland: purchasing passenger vehicles for employees is typically tax-inefficient due to BIK taxation.
Here’s why:
When a company provides a vehicle that employees can use for personal journeys, Revenue treats this as a “benefit in kind” – essentially taxable income. For a typical €40,000 company car with medium emissions, an employee could face an additional €4,992 in annual tax liability (€416 per month).
The key exceptions are:
- Commercial vehicles where business use is genuinely justified
- Electric vehicles (with current exemptions up to €45,000 in 2025)
- Mileage reimbursement for personal vehicles used for business
Understanding Commercial Vehicle Tax In The Irish Context
Company vehicles in Ireland fall into two distinct categories with very different tax treatments:
- Company cars (passenger vehicles): Standard vehicles primarily designed for carrying passengers – these usually create significant BIK tax burdens.
- Commercial vehicles: Vehicles primarily designed for carrying goods rather than people – these offer substantial tax advantages when business use is justified.
This distinction is crucial because it determines your BIK liability, VAT recovery options, and overall tax efficiency.
When Commercial Vehicles Make Sense
Proper classification under commercial vehicle tax regulations can lead to substantial tax savings, but only when the business use is genuinely justified:
Tax Benefits of Commercial Vehicles
- Full VAT recovery on purchase price
- Fixed BIK rate of €4,000 per year (rather than percentage-based)
- Lower VRT rates
- Reduced motor tax rates
- Full VAT recovery on all running costs
What Qualifies as a Commercial Vehicle
- Vehicles designed primarily for carrying goods
- Vehicles with no rear seats and a permanent partition between cab and rear
- Certain crew-cab vehicles with specific modifications
Important Reality Check: Commercial vehicles only make sense for employees whose roles genuinely require goods transportation. For office-based employees, the business justification generally doesn’t exist, making even the reduced BIK of €4,000 annually hard to justify.
The Electric Vehicle Exception
Electric vehicles represent the main exception to the “avoid company cars” rule, thanks to significant government incentives:
Current EV Benefits (2025)
- BIK exemption on EVs up to €45,000
- Zero vehicle registration tax (VRT) on EVs up to €40,000
- Lower motor tax and reduced toll charges
- SEAI grants for business charging points
Critical Update: EV Exemptions Are Temporary
While EVs benefit from BIK exemptions, they still fall under the broader umbrella of commercial vehicle tax rules when used for business. The government has flagged that EV BIK exemptions will be tapered in the 2026 budget, potentially from January 1, 2026. This makes 2025 potentially the last year of full EV BIK exemptions, so businesses considering electric company vehicles should act quickly.
EV Cost Comparison Example
For a €45,000 electric vehicle versus a comparable diesel:
Tesla Model 3 (Electric – €45,000):
- Annual BIK liability: €0 (exemption applies)
- Annual running costs: ~€720 (charging + motor tax)
- Total annual cost to employee: €0
Executive Diesel (€45,000):
- Annual BIK value: €11,250 (25% rate)
- Tax cost for 52% taxpayer: €5,850
- Annual fuel costs: €2,400
- Total annual cost to employee: €5,850
Smarter Alternatives: Mileage Reimbursement
For most businesses, mileage reimbursement for employees using personal vehicles offers the most tax-efficient solution:
Revenue-Approved Mileage Rates (2025)
- Up to 1,200cc: €0.36/km (first 6,437km), €0.21/km thereafter
- 1,201cc to 1,500cc: €0.40/km (first 6,437km), €0.23/km thereafter
- 1,501cc and over: €0.44/km (first 6,437km), €0.25/km thereafter
- Electric vehicles: €0.35/km (first 6,437km), €0.21/km thereafter
Why This Works Better
- Tax-free payments for employees (within Revenue rates)
- Tax-deductible expenses for the business
- No BIK complications
- No vehicle ownership responsibilities
Example: Annual Business Mileage of 15,000km
An employee with a 1.6L engine driving 15,000 business kilometers would receive:
- €6,437 × €0.44 + 8,563 × €0.25 = €4,973 tax-free annually
- Compare this to potential BIK tax of €3,000-€6,000 on a company car
Recent Tax Changes Affecting Vehicle Decisions
Vehicle Registration Tax (VRT) Updates for 2025
- New reduced VRT rate of 8% for low-emission commercial vehicles (previously 13.3%)
- Lower weight ratio threshold for commercial EVs to qualify for €200 flat VRT rate
Capital Allowances Changes (April 2025)
Double cab pickups will be treated as cars rather than commercial vehicles for tax purposes, significantly reducing their tax advantages.
Director vs. Employee Considerations
For Directors: Directors have more flexibility in structuring vehicle arrangements and may benefit from salary sacrifice arrangements, but the same BIK rules apply. The higher tax rates directors typically face (52%+) make BIK even more expensive.
For Employees: The mathematics are clear: unless you’re receiving an electric vehicle under €45,000 or genuinely need a commercial vehicle for business purposes, company cars create significant tax liabilities that usually outweigh the benefits.
Key Action Points
- Audit current arrangements: Are you unnecessarily creating BIK liabilities?
- Consider EV purchases in 2025: This may be the last year of full BIK exemptions
- Switch to mileage reimbursement: For most employees, this is more tax-efficient
- Reserve commercial vehicles: Only for roles with genuine goods transportation needs
- Document business justification: Essential for commercial vehicle claims
How Around Finance Can Help
At Around Finance, we help businesses avoid costly vehicle tax mistakes. Our services include:
- Strategic vehicle policy reviews to eliminate unnecessary BIK liabilities
- EV purchase planning before 2026 exemption changes
- Mileage reimbursement system implementation
- Commercial vehicle justification documentation
- Integration with Xero for automated expense tracking
The bottom line: Most companies should avoid purchasing passenger vehicles for employees due to BIK implications. Focus on commercial vehicles where business-justified, maximise 2025 EV opportunities, and implement efficient mileage reimbursement systems for everything else.
Contact us today to review your vehicle strategy and ensure you’re not overpaying tax on company vehicles.
FAQs
Should my company buy cars for employees?
Generally no – BIK taxation makes this expensive for both company and employee. Consider mileage reimbursement instead
When do commercial vehicles make sense?
Only when employees genuinely need to transport goods as part of their role – not for office-based staff.
Are electric vehicles still tax-free in 2025?
Yes, EVs up to €45,000 have BIK exemption in 2025, but this is expected to end in 2026.
What’s the most tax-efficient approach for business travel?
Mileage reimbursement for employees using personal vehicles, within Revenue-approved rates.
Can directors structure vehicle benefits differently?
Directors have more flexibility but face the same BIK calculations – often at higher tax rates, making it even more expensive.
