Benefit in kind for company cars in 2024 (and beyond?)

Drivers of a company car (with private use) can breathe a sigh of relief: an excessive increase in the benefit in kind for combustion company cars has been averted … for now. Additionally, the minimum benefit in kind will only marginally increase. In this alert, we discuss the evolution of the benefit in kind for a company car.
 

Increased benefit in kind for (non-electric) company cars

The taxable benefit in kind (i.e. the value on which the taxes for the car are calculated) is calculated based on the following factors: the catalogue value, the registration date, the fuel type, and the CO2 emission.

Furthermore, a CO2 coefficient which factors in the average CO2 output of new cars on the road in Belgium as a “reference CO2 emission”, is one of the central elements in the calculation of this BIK. The difference between the CO2 emission of the company car and the reference CO2 emission is the key determining factor for the increase of the benefit in kind for combustion cars in a given tax year (decrease is not possible anymore since 2021, see one of our previous alerts in this respect).

Exceptionally, the reference CO2 emission for the 2024 income year had not been determined by the end of January 2024. As a result, the BIK amount on January's payslip was still based on the 2023 income year's reference value.

The delay was due to the significant reduction of the reference CO2 emission based on the existing guidelines for the determination of the reference CO2 emission. Changes in tax law have led to an explosion of new low or zero emission cars, many of which are company cars, resulting in a decrease in the reference CO2 emission, which in turn would have resulted in a sharp increase in the benefit in kind for combustion company cars. This would likely have been perceived as a de facto tax increase for the employees involved.
 

Response of the government

This led the Belgian finance ministry to second-guess the way this benefit in kind was calculated. Given the political sensitivity of the taxation of company cars, and based on political negotiation, a less impactful reference CO2 emission was negotiated by adjusting the basis of the calculation to the newer WLTP standard, and additional measures were introduced to also benefit employees commuting to the office by bike or train.

Concretely:

• For employees commuting by bike: the annual maximum tax-free amount for the bike allowance will be increased to 3.500 EUR;
• For employees commuting to work by train: if the third-party payers system is not used, and the employer increases their reimbursement of the train subscription to 71,8%, the government will cover an additional 7,5%, decreasing the remaining cost to be borne by the employee.
   

Values applicable for 2024

Based on the new political compromise, the reference CO2 emission values as from January 1st, 2024 are:

• Petrol, LPG- or natural gas engine: 78 g/km instead of 51 g/km before the changes (in 2023: 82 g/km);
• Diesel engine: 65 g/km instead of 42 g/km before the changes (in 2023: 67 g/km).

Furthermore, the minimum benefit in kind for a company car has increased to 1.600 EUR per year, compared to 1.540 EUR in 2023 (a 3,9% increase).

As the necessary data for 2024 is now available, corrections will in principle be necessary for the payroll of January 2024.
 

What will the future bring?

As shown in the example below, the taxable benefit in kind for the private use of a company car will therefore increase in 2024 compared to 2023 for non-electric cars. Each year in which the Belgian vehicle fleet becomes greener overall, the employees with a non-green company car will see an additional increase of their benefit in kind for the next year.

For example, if there is no repeat intervention by the government, our analysis determines an increase of the taxes for combustion company cars in 2025 with 30-40%. To note, the annual benefit in kind of a BMW X1 (petrol) with a catalogue value of € 43.284 (incl. VAT) and a CO2 of 141 g/km has already increased with 38,82 % since 2020. 

The significant increase of the benefit in kind does not only negatively impact the employee, but also the employer. A higher benefit in kind will lead to a higher Total Cost of Ownership (TCO) and higher corporate taxes. 

Key takeaways

For many reasons, the electrification of company car fleets is still the way to go for companies seeking to implement a futureproof policy with regard to company cars. However, the measure now introduced by the government does reduce the impact on the benefit in kind for the continued use of combustion engine company cars for employees across the country for at least another year.

As the greening trend of vehicles (inclusive of both company and private cars) continues, the yearly reference CO2 value will continue to decline. This will in turn prompt a corresponding rise in the benefit in kind for non-electric cars. It remains to be seen if a similar governmental intervention will follow next year.

For now, companies should:

• Ensure a correction for the month of January is processed with the February payroll, incorporating the updated benefit in kind for their employees who have a company car;
• Evaluate the impact on the total cost of ownership of current and expected changes to the benefit in kind of a company car, and adjust their mobility policies as needed;
• Evaluate their policies in light of the measures benefiting those commuting by bike and, particularly, by train, as these modes of transportation are once more highlighted by the government in their agreement as important alternatives to company cars.

If you want to know more about the mobility transformation and the way to set up a green mobility policy, don’t hesitate to contact your EY contact.

Furthermore, our payroll professionals can help you optimize the (global) payroll and reduce compliance risk so you meet all payroll requirements today and in the future. For more information, please do not hesitate to reach out to us: payrolloperate@be.ey.com, via your trusted EY advisor, or via our contact form.