Yes, that’s quite a shock! Many business drivers already consider the current additional tax liability of 22% of the list price to be high. Nevertheless, the National Audit Office in a recent report to increase this additional tax liability to as much as 30%. However, the Treasury appears to be satisfied with the current figure of 22%.
Main objectives
The Court of Auditors bases its recommendation on the main objectives of vehicle taxation, as set out by the Government:
- a stable source of revenue for the government;
- substantial support for air quality and climate targets in the automotive sector, through proportionate and targeted tax incentives.
As far as a stable income stream is concerned, things are looking good. The car, that tax “cash cow”, still generates sufficient revenue (around €16.6 billion in 2018).
However, many of the no fewer than 54 (!) schemes and exemptions within the car tax system appear to be based on different justifications and/or contravene the main objectives of car taxation. Only a limited number of these numerous schemes are actually aimed at achieving an air quality and/or climate objective.
Lump-sum system
The Ministry of Finance states in a comment It follows that, for the additional tax liability percentage applicable to company cars, a flat-rate system has been adopted which is relatively straightforward and easy to implement. It is a combination of different approaches to determining the private benefit.
One approach is to look at the savings value. That is the value of the savings the employee makes because they do not need to buy a car for personal use.
Another approach is to use the wages in kind to be determined. In that case, the benefit would be equal to the costs incurred by the employer in relation to the car provided to the employee.
Furthermore, the additional tax percentage must not be so low as to result in someone with a company car receiving more favourable tax treatment than someone with their own car. On the other hand, the benefit to be taken into account must not be too high either.
The Ministry of Finance notes that the current additional tax liability of 22% falls within this range. However, it is quick to point out that a flat-rate approach is, by definition, not always an accurate reflection of the actual benefit enjoyed by the individual.
Electric car
It therefore looks as though the additional tax liability percentage for company cars will remain unchanged. This does not apply to fully electric cars. These cars are currently subject to an additional tax liability of just 4%. In 2026, a tax addition of 22% will also have to be applied to these cars. See our article Higher tax liability for electric cars.