Company cars and vehicle benefits in Ireland
Reviewed by Mellow Editorial Team, HR & payroll content team
A company car in Ireland is a taxable benefit-in-kind (BIK), and the employer is responsible for calculating, deducting and reporting the correct tax through payroll each pay period. Getting this wrong can trigger Revenue audits and interest charges, so understanding the mechanics matters.
How benefit-in-kind on company cars works
When an employee has private use of a company car, the value of that benefit must be added to their gross pay and taxed accordingly. Revenue sets the cash equivalent — the taxable value of the benefit — using the car's original market value (OMV) and an emissions-based percentage.
The percentage applied to the OMV depends on the car's CO₂ emissions category. Lower-emission vehicles attract a lower BIK rate; higher-emission vehicles attract a higher one. Electric vehicles have their own preferential treatment, though relief levels have been adjusted in recent years, so it is worth checking the current Revenue guidance for the precise OMV thresholds and rates in effect for the 2026/27 tax year.
The resulting cash equivalent is then treated as notional pay. You add it to the employee's salary and apply income tax (20% up to roughly €44,000 for a single person, 40% above that), USC at the applicable banded rates (0.5%, 2%, 3% or 8%), and PRSI — employee at approximately 4.1% and employer at approximately 11.15% under Class A. The employee pays more tax; the employer pays more employer PRSI. Both costs are real and should factor into any decision to offer a company car.
Business versus private use
The BIK calculation assumes full private use unless the employer can demonstrate otherwise. Revenue allows a reduction in the cash equivalent where the employee's business mileage is high. There are mileage bands: the more kilometres driven for genuine business purposes, the lower the percentage of OMV that is taxable.
To apply a reduced rate, you need robust records — mileage logs showing dates, destinations, business purpose and kilometres driven. Informal estimates will not hold up under scrutiny. If an employee uses their personal car for business travel instead and you pay mileage allowances at or below Revenue's civil service rates, those payments are generally not taxable, which is sometimes a simpler arrangement altogether.
The employer's payroll process
The practical steps for an employer are as follows.
Calculate the cash equivalent. At the start of the year (or when the benefit begins), determine the car's OMV, identify the correct emissions category and apply the relevant BIK percentage. This gives you an annual cash equivalent figure.
Spread it across pay periods. Divide the annual cash equivalent by the number of pay periods in the year — 12 for monthly payroll, 52 for weekly — and add that amount to the employee's gross pay each period.
Run payroll as normal. Once the notional pay is added, income tax, USC and PRSI are calculated on the combined figure in the usual way. There is no separate BIK return; it runs through standard payroll.
Submit to Revenue in real time. Ireland uses real-time reporting, meaning you must submit a payroll submission (PSR) to Revenue via ROS on or before each payday. The BIK figure should be visible in the submission as part of the employee's taxable income. Late or missing submissions attract penalties.
Adjust during the year if circumstances change. If a car is changed, returned or the employee's business mileage changes materially, you need to recalculate and adjust the BIK figure from that point forward. Do not wait until year-end.
Vans and other vehicles
A van used primarily for business, with only incidental private use, may not attract BIK at all — but Revenue applies a specific test. If an employee takes a van home each night, Revenue may treat that as private use unless you can show it is necessary for the role and private use is genuinely incidental. Where BIK does apply to a van, a fixed annual cash equivalent applies rather than the OMV-percentage method used for cars. Again, check current Revenue guidance for the figure in force for 2026/27.
Pool cars — vehicles available to multiple employees with no personal allocation and not kept at employees' homes overnight — are generally exempt from BIK, provided the conditions are genuinely met.
Record-keeping and Revenue compliance
Revenue can request business mileage logs, fuel records, insurance documents and any car policy in place. Employers should keep these for at least six years. If you run a payroll audit or Revenue conduct a PAYE compliance check, vehicle benefits are one of the first areas examined because errors are common. Common mistakes include applying the wrong emissions band, failing to include BIK at all for cars nominally classified as pool vehicles, and not adjusting the cash equivalent when a car is replaced mid-year.
If you operate payroll across multiple countries as well as Ireland, it is worth understanding how Mellow runs payroll across six countries on one platform — consistent real-time compliance is harder to manage than it looks when different BIK rules apply in each jurisdiction.
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