How much is the company-car tax on an electric car?

Electric company-car tax is set to fall to 0% in April 2020, making zero-emissions cars hugely attractive to user-choosers

Kia e-Niro charging

Electric cars are exempt from Vehicle Excise Duty – otherwise known as road tax – but you need to pay Benefit-in-Kind (BiK) tax if you have one as a company car.

Introduced in 2002, company-car tax applies to cars bought by employers for their employees' private use. The measure was brought in to encourage both businesses and workers to choose low-emission vehicles. There are around a million company cars on UK roads, generating almost £2.5 billion in revenue for the Treasury every year.

Company-car tax is more complicated than VED, as the value not only depends on the vehicle’s emissions, but also its list price and how much the employee using the car earns. For a full explanation, read on for our full guide to how BiK works and how it applies to electric vehicles.

How company-car tax works for electric vehicles

When an employee receives a vehicle for personal use from the company, this is classed as a 'perk', which is taxable. The more formal name is a Benefit-in-Kind (BiK) and applies to all perks other than income or remuneration packages.

Before going further, it’s important to point out that employees get to choose their company car from a list provided by their company. How much tax the company and the employee pays depends on the vehicle’s value, its CO2 emissions and the income-tax bracket of the employee.

Actual company-car tax in the UK is broken down into two parts. What the company has to contribute and what the employee using the car has to contribute. This applies for both electric and non-electric cars.

How much the company has to pay is determined by the car’s 'P11D' value – this is the value of the car including VAT, options and the delivery fee – as well as its CO2 emissions. The company fills out a form each year and pays the fee to the Treasury.

How much the employee has to pay is slightly more complicated. The BiK tax rate is determined by the BiK tax band the vehicle sits in, its P11D value, as well as your income-tax bracket. The following formula is used to calculate BiK tax: (P11D value) x (BiK band) x (income-tax bracket) = BiK tax

For example, a Nissan Leaf 40kWh N-Connecta has a P11D value of £31,145. The BiK band or value is determined by the Government. For the financial year 2019/2020, it was been set at 16%. This means the BiK value for the Leaf is £4,983.20. The BiK value can be calculated by multiplying the BiK band with the P11D value (31,145 x 0.16).

The next step is to work out how much tax you'll have to pay on the BiK value by multiplying it by your income-tax bracket. If you're a 20% taxpayer, you'll pay 20% of the BiK value, which equates to £996.64 per year. If you're a 40% taxpayer, it'll cost £1,993.28 annually.

What is the BiK rate for electric cars?

Using the above formula, the key to the overall BiK tax is the BiK band or BiK rate, expressed as a percentage. This percentage is determined by the Government. In short, the more polluting the vehicle, the higher its BiK rate is. For electric cars, the BiK rate is currently at 16% for the 2019/2020 year.

However, the Government has announced it will cut BiK rates for zero-emissions vehicles down to 0% during the 2020-21 financial year, rising to just 1% in 2021-22 and 2% in 2022-23. This will apply retroactively to electric company cars already registered before the 6 April 2020 introduction date for the new rates.

Using the Nissan Leaf above as an example, company-car tax for the next three financial years will therefore amount to £0, £62.29 and £124.58 for 20% rate taxpayers.

What is the BiK rate for plug-in hybrid cars?

Because BiK rates are determined by CO2 emissions, plug-in hybrids (PHEVs) also have to pay company-car tax in the UK. However, how much they pay also depends on how far they can be driven with zero emissions.

The below table shows what the BiK rates for PHEVs in the UK will be over the next three financial years, for car first registered on or after 6 April 2020. From this date on, company-car tax will be calculated on CO2 figures from the latest WLTP fuel-economy and emissions testing procedure.

CO2 (g/km) Electric range (miles) 2020-21 rate (%) 2021-22 rate (%) 2022-23 rate (%)
1-50 >130 0 1 2
1-50 70-129 3 4 5
1-50 40-69 6 7 8
1-50 30-39 10 11 12
1-50 <30 12 13 14

The rates vary slightly for cars first registered before 6 April 2020. CO2 emissions for these cars will be taken from the outgoing NEDC fuel-economy and emissions testing procedure, and the rates will be as follows:

CO2 (g/km) Electric range (miles) 2020-21 rate (%) 2021-22 rate (%) 2022-23 rate (%)
1-50 >130 2 2 2
1-50 70-129 5 5 5
1-50 40-69 8 8 8
1-50 30-39 12 12 12
1-50 <30 14 14 14

The method of calculating the BiK value is the same for PHEVs and hybrids as it is for normal and electric cars. However, it’s important to note that for plug-in hybrid and electric cars, the list price of the vehicle (used in the P11D value) must always include the cost of the battery. This applies even if the battery is leased separately. If it is leased by the employer on behalf of the employee, this has to be listed as a taxable benefit at a cost to the employer.

Do vans have to pay company-car tax?

If your company provides you with either a van or an electric van for private use, it doesn't face the company-car tax described above. Rather, vans are subject to a van benefit charge. This is set at a flat rate of £3,430 for the 2019-20 financial year for normal vans. However, electric vans are liable for a partial exemption. The current rate is set so companies only have to pay 60% of the liability.

Explore what businesses should know before installing their first EV charge points.

Download the whitepaper from Eon - brought to you in association with our sister site ITPro.

Download now