How much is the Benefit-in-Kind company-car tax on an electric car?
The company-car tax, or BiK rate, on electric vehicles is 1% in the 2021/22 financial year, rising to just 2% for 2022/23, making a zero-emissions car a great choice for business users
Right now, electric cars are fully exempt from road tax – otherwise referred to as Vehicle Excise Duty – and exempt from the London Congestion Charge until 2025. But for the 2021/22 financial year, beginning 6 April 2021, the company-car tax (also known as Benefit-in-Kind, or BiK) rate for all zero-emissions vehicles stands at 1%.
For 2022/23, the rate rises to just 2% and stays there for the following three financial years (up to April 2024) so there are still big savings to be made compared to a petrol or diesel-engined alternative, as they can incur BiK rates up to 37% based on their emissions.
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, primarily by linking tax payments to CO2 emissions. 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 on its list price and the salary of the employee using it. For a full explanation, read on below for our full guide to how Benefit-in-Kind works and how it applies to electric cars.
How company-car tax and BiK rates work for electric cars
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 it 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 each pay depends on the vehicle’s value, its CO2 emissions and the income-tax bracket of the employee.
Company-car tax in the UK is broken down into two parts: how much the company has to contribute and how much the employee using the car has to contribute. This applies to 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 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, at the time of writing, a Nissan Leaf 40kWh N-Connecta has a P11D value of £30,440. The car's BiK band is determined by the Government. For the financial year 2021/22, it's set at 1%. This means the BiK value for the Leaf is £304, as the BiK value is calculated by multiplying the BiK band by the P11D value (30,440 x 0.01).
The next step is to work out how much tax you have to pay on the BiK value; this is done 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 £61 per year. If you're a 40% taxpayer, it'll cost £122 annually.
What is the Benefit-in-Kind (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 1% during the 2021/22 financial year. It will rise to 2% for 2022/23, remaining there during 2023/24 and 2024/25.
What is the Benefit-in-Kind (BiK) rate for plug-in hybrid cars?
Because BiK rates are determined by CO2 emissions, plug-in hybrids (PHEVs) are also subject to company-car tax in the UK. However, how much you pay also depends on how far they can be driven with zero emissions. The below table shows the BiK rates for plug-in hybrid company cars for cars that were first registered on or after 6 April 2020. From this date on, company-car tax has been calculated on CO2 figures from the latest WLTP fuel-economy and emissions testing procedure.
|CO2 (g/km)||Electric range (miles)||2021/22 rate (%)||2022/23 rate (%)||2023/24 rate (%)|
|1-50||More than 130||1||2||2|
|1-50||Less than 30||13||14||14|
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 has been set a flat rate of £3,500 during the 2021/22 and 2022/23 financial years for combustion-engined vans, however the rate for fully electric vans is zero.
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