By Richie Lennon
At a glance
Buying a vehicle through your Irish company is not automatically a tax saving. VAT recovery, Vehicle Registration Tax, motor tax and benefit in kind use different rules. A commercial description does not settle all four. Private use can create a taxable benefit for a director or employee, while electric-car relief changes by year. Before buying or leasing, compare the company’s cash cost, the user’s personal tax and the cost over the full term.
The company has the money, so the company should buy the car. We hear that argument regularly. It skips the question that matters: what does the decision cost you and the business once the tax and finance are included?
Our view is straightforward. Choose the vehicle for the work it needs to do, then calculate the tax. A logo on the door does not turn a personal car into a tax-free business asset. Nor does buying second-hand remove the company-car calculation.
Four separate vehicle tax questions
Start with the actual vehicle specification and use. A dealer’s description of a vehicle as commercial is not enough to establish every tax treatment.
| Question | What it decides | What you need to check |
|---|---|---|
| VAT | VAT charged and how much the business can recover | Invoice, vehicle type, VAT registration and taxable business use |
| Vehicle Registration Tax, or VRT | Tax when the vehicle is registered in Ireland | Registration category, emissions and applicable relief |
| Motor tax | The annual vehicle licence | Correct tax class and actual use |
| Benefit in kind, or BIK | Taxable benefit for the person using a company vehicle | Vehicle definition, private availability or use, value and applicable rules |
A vehicle can meet one test without meeting another. Keep the purchase invoice, registration details and specification together, and have the position checked before committing to the deal.
VAT on commercial vehicles in Ireland
The standard Irish VAT rate on a normally taxable vehicle sale is 23%. That does not mean every used vehicle has recoverable VAT, or every business can claim all of it back.
A VAT-registered business buying an eligible commercial vehicle for taxable business activities can normally recover the VAT attributable to that use. Exempt activities and private use can restrict recovery. The invoice and the transaction matter as much as the vehicle description.
For illustration, a qualifying van costs €30,000 plus €6,900 VAT. A business entitled to full recovery can reclaim the €6,900 through its VAT return. Until it recovers that amount, the purchase still requires €36,900 of cash. The company also has to fund the €30,000 cost and the running expenses.
If the dealer sells a used vehicle under the margin scheme, there is no separately deductible VAT on the purchase. Do not work backwards from the total price and assume that 23% VAT is available to reclaim. Ask what the invoice will show before paying a deposit. See Revenue’s motor-vehicle VAT guidance.
Passenger cars have much tighter rules. A qualifying car can permit partial VAT recovery, but that is not the same as full commercial-vehicle recovery. Revenue’s passenger-car guidance sets out the emissions, business-use and other conditions. An electric badge alone does not settle them.
Vans: private use and the exemption
For BIK, Revenue has a specific van definition. Check the construction and seating, not just the sales brochure. Adding rear seats or choosing a double-cab vehicle can change the analysis. UK double-cab rules do not decide Irish tax treatment.
Where a qualifying company van has taxable private use, the normal annual cash equivalent is 8% of its Original Market Value. Original Market Value, or OMV, is the value when new, rather than today’s second-hand price. The applicable OMV reduction is €10,000 in 2026.
For a full-year illustration, a van with €40,000 OMV and no qualifying exemption or employee contribution produces a €2,400 taxable benefit: (€40,000 minus €10,000) × 8%. That is extra taxable pay, not a €2,400 tax bill. Payroll calculates the relevant Income Tax, USC and PRSI.
There is a limited-private-use exemption, but all its conditions matter. The employee must need to take the van home for work, have no other private use apart from home-to-work travel, and spend at least 80% of working time away from the employer’s premises. A van used for family trips does not meet that limited-use test.
The reductions also taper: €5,000 in 2027 and €2,500 in 2028 under current guidance. Use Revenue’s van calculation and exemption conditions for the particular vehicle and year. Electric vans have separate relief provisions; do not apply the car example below to them.
Cars: directors and employees use the same starting rules
A company car made available for private use can create BIK for a director or employee. Being the owner-director does not remove the charge. Leasing instead of buying does not, by itself, change it either.
For cars, the calculation uses OMV, the CO₂ category and annual business kilometres, with applicable reductions and adjustments. Buying an expensive car cheaply second-hand does not substitute that lower purchase price for its original value.
Business kilometres can change the percentage used. Ordinary commuting is generally private travel. Genuine journeys to clients or work sites can qualify, depending on the circumstances; keep a journey log rather than treating all travel away from home as business.
For private use, do not simply multiply the BIK result by the percentage of personal mileage. That is not the company-car calculation. Revenue explains the method and adjustments in its company-car guidance.
Electric cars: compare the whole term
An electric company car can have a lower BIK cost, but the relief belongs to the tax year. Taking delivery in 2026 does not lock in the 2026 deduction for every later year.
Here is an illustration using a €45,000 OMV electric car, full-year availability, no employee contribution and no more than 26,000 annual business kilometres. It uses the 15% electric-car A1 percentage and the reductions in current Revenue guidance.
| Year | Combined OMV reduction | Value used in this illustration | Annual taxable benefit |
|---|---|---|---|
| 2026 | €30,000 | €15,000 | €2,250 |
| 2027 | €15,000 | €30,000 | €4,500 |
| 2028 | €2,500 | €42,500 | €6,375 |
Those are taxable benefits added to pay. Your personal tax depends on your circumstances. The same car produces twice the taxable benefit in 2027 as in 2026 in this example.
That is the point we want owners to see before signing a multi-year agreement. A good first-year figure is not a three-year comparison. Check the term, delivery date and future payroll cost, rather than assuming that a further relief extension will arrive.
The electric-specific reduction applies to fully electric cars. Hybrids do not qualify for that particular relief. See Revenue’s electric-car reductions. Budget proposals about VRT are a separate matter and do not, by themselves, change this BIK calculation.
VRT and commercial motor tax
VRT depends on the registration classification and the vehicle. A commercial vehicle is not automatically exempt. If you import one, get the registration and VAT position established before comparing its overseas price with an Irish dealer’s price.
Motor tax has its own rules. The goods rate is not a general discount for any vehicle owned by a business. The required goods-use declaration and the vehicle’s actual use must agree. The RF111A declaration expressly excludes social, domestic and pleasure use. Check the correct class with your local motor-tax office.
If you plan family use as well as deliveries, raise that before registration and insurance are arranged. Do not assume the BIK treatment also approves the motor-tax class.
Buy, lease or use your own vehicle?
Compare the real cash flows. Buying leaves the company with an asset and a resale risk. A lease has rentals, mileage limits, maintenance terms and return conditions. Hire purchase has its own payment and ownership terms.
Our leasing argument is about the contract and who carries the future value risk. It is not that a lease automatically removes BIK or makes the whole cost tax deductible. Capital allowances, interest and lease deductions follow their own rules; accounting depreciation is not automatically the tax deduction.
Include the deposit, repayments or rentals, VAT that cannot be recovered, running costs, expected sale proceeds or return charges, company tax relief and the user’s BIK tax. Keep company cost and personal cost visible separately.
Owning the vehicle personally and claiming qualifying business travel can be another option for a director or employee. Use actual supported expenses or approved rates where allowed, keep journey records and meet reporting requirements. A sole trader’s own business motoring expenses follow different rules; an employee mileage allowance is not a universal sole-trader deduction.
The ordinary Civil Service motor-travel rates use four bands of cumulative annual business kilometres. These are cents per kilometre, not euros:
| Annual business kilometres | Up to 1,200cc | 1,201–1,500cc | Over 1,500cc |
|---|---|---|---|
| First 1,500 | 41.80c | 43.40c | 51.82c |
| 1,501–5,500 | 72.64c | 79.18c | 90.63c |
| 5,501–25,000 | 31.78c | 31.79c | 39.22c |
| Above 25,000 | 20.56c | 23.85c | 25.87c |
Electric vehicles use the 1,201–1,500cc category. For an illustrative 15,000 qualifying business kilometres in a privately owned car over 1,500cc, the payment is €8,128.40: 1,500 × €0.5182, plus 4,000 × €0.9063, plus 9,500 × €0.3922. The employee still bears the cost of owning and running the car, so that payment alone does not prove this option is cheaper.
Revenue’s rates and conditions include situations requiring reduced rates. Use the correct journey category, not just the table.
Ask for the comparison before the purchase
The useful advice comes before the deposit, not when the accountant sees the bank transaction. Ask for a comparison using the exact vehicle, actual business mileage and full finance term. Check what is included in your accounting engagement and agree any detailed advisory work separately.
Around Finance’s business tax accounting service helps connect these decisions with company tax, payroll and cash planning. The director funds guide explains the wider question of paying yourself from a company.
If your Irish business turns over €250,000 or more and you want a clearer finance setup, book a Finance Fit Call.
FAQs
What is the VAT rate on commercial vehicles in Ireland?
The standard rate is 23% on a normally taxable sale. A used vehicle sold under the margin scheme does not give the buyer separately deductible VAT. Recovery also depends on the buyer’s VAT position, vehicle and taxable business use.
Does a commercial vehicle avoid BIK?
Not automatically. Check the BIK vehicle definition and use. A qualifying van has a limited-private-use exemption only when all its conditions are met. A dealer’s commercial description or a business logo is not an exemption.
Is van BIK a fixed €4,000 each year?
No. The normal calculation is 8% of OMV, with the applicable reduction and adjustments. A €40,000 OMV van produces €2,400 annual taxable benefit in the full-year 2026 example above, before any qualifying exemption or contribution.
Do directors have different company-car BIK rules from employees?
Directors and employees start with the same employer-provided vehicle rules. The individual’s tax and PRSI position can differ, so calculate the personal liability rather than assuming one rate for everyone.
Does buying second-hand or leasing avoid company-car BIK?
No. A second-hand car still uses its original market value in the calculation. Leasing does not, by itself, remove BIK. Compare the finance cost separately from the benefit calculation.
Will my 2026 electric-car relief last for the whole lease?
No. The reductions change by tax year. Under current guidance, the combined OMV reduction for an electric car falls from €30,000 in 2026 to €15,000 in 2027 and €2,500 in 2028. Model the full term before signing.
