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Company Car Tax On Electric Cars

What is company car/benefit in kind tax?

If you work for a business or company, you may be given a company car by your employee. A company car makes it easier for employees who have a family or no car of their own to commute to work and for personal use. Sounds pretty good, right?

However¦

With a company car comes a price. This extra benefit is known as a benefit in kind tax (BIK). The cash value of the car is added onto your salary meaning that your tax may rise if the addition of the value of the company car takes you above a tax threshold. The amount of tax you have to pay depends on:

 

  • CO2 emission
  • Model and make of the car
  • Price of the vehicle
  • The fuel type
  • How frequently you use the car

 

Therefore, BIK can have a large impact on your monthly wage.

Benefit in Kind Tax Incentive for Electric Cars

If your company provides you with an electric car, then CO2 emission is not a consideration, as one of the benefits of electric cars is they're much better for the environment. Therefore being given an electric vehicle as a company car would probably be cheaper overall than if you were given a petrol or diesel, as they both produce greenhouse gases. Also, electric cars are considerably cheaper to run in general than cars using non-renewable fuels. Because of this, BIK helps the government to encourage more low emitting vehicles on the road.

 

Benefit in Kind Rates for Electric Cars

With the change in BIK rates in April 2020 stating that fully electric vehicles pay no company car tax in 2020 - 2021 (2021 - 2022 being 1% and 2022 - 2023 being 2%), the rise of fully electric cars is sure to increase dramatically, especially now that they’re becoming more popular, accessible and in demand. 

Let's use the Hyundai Kona and Kona Electric as examples of the difference between an electric and non electric car when it comes to BIK value:

 

  Hyundai Kona Hyundai Kona Electric
P11D £26,245 £32,845
CO2 (g/km) 189 0
Registration date/ standard Registered from 06 April 2020 - WLTP Registered from 06 April 2020 - WLTP
Tax Year 2020/21    
BIK rate 37% 0%
BIK value £9,711 £0
Tax 20% £1,942 £0
Tax 40% £3,884 £0
Tax 45% £4,370 £0
Tax Year 2021/22    
BIK rate 37% 1%
BIK value £9,711 £328
Tax 20% £1,942 £66
Tax 40% £3,884 £131
Tax 45% £4,370 £148
Tax Year 2022/23    
BIK rate 37% 2%
BIK value £9,711 £657
Tax 20% £1,942 £131
Tax 40% £3,884 £263
Tax 45% £4,370 £296
Total tax 2020-23    
Tax 20% £5,826 £197
Tax 40% £11,652 £394
Tax 45% £13,110 £444

Via NextGreenCar

As you can see, despite having a higher P11D, the Hyundai Kona Electric's total tax from 2020 to 2023 is significantly lower than the non-electric model. 

How is Benefit in Kind Tax Calculated

To calculate the BIK tax on your car, you need to base it on the cars CO2 emissions (None if electric)

 

  • Calculating the BIK tax on your car requires you to multiply your car's BIK percentage band by its P11D value. This value is made up of:
  • Vehicle list price
  • Optional extras
  • Delivery fees
  • Value Added Tax (VAT)

 

Your BIK percentage band is based on your car's CO2 emissions. Therefore, if you're using a pure electric vehicle, this will be 0%. Therefore, company car drivers can save a great deal if they're driving an pure EV or even a hybrid.

 

Road Tax on Electric Cars

Pure battery vehicles are exempt from road tax because it is calculated based on the CO2 tailpipe emissions, and pure electric cars emit no CO2.

Plug-in hybrids, however, do have to pay road tax, but it is reduced from other fuel types. They're likely to cost between £0 and £100 depending on the CO2 emissions.

So with no road tax to pay and BIK dramatically reduces for pure electric cars, it's no wonder electric cars are getting increasingly popular as business cars.

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