How much is the company-car tax on an electric car?
While fully electric cars are Vehicle Excise Duty-exempt, you have to pay Benefit-in-Kind (BiK) tax if you have one as a company car.
Introduced in 2002 by the Treasury, company-car tax is another form of vehicle tax that applies to cars bought by employers for their employees' private use. It was introduced to encourage both employers and employees to choose low-emissions vehicles.
Currently, there are close to a million company cars on UK roads, generating over £2.48 billion in revenue for the Treasury every year. It’s important to note that company-car tax only applies to vehicles that a company or employer has bought for its employee for private use – not a vehicle owned by the company that the employee drives solely in the course of their duties.
Company-car tax is also 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.
In short, it’s made up of two parts: what the company has to pay and what the person using the car has to pay. Read on for a full breakdown of 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 the 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 £31,335.
The BiK band or value is determined by the Government. For the financial year 2019/2020, it has been set at 16%. This means the BiK value for the Leaf is £5,014. The BiK value can be calculated by multiplying the BiK band with the P11D value (31,355 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 £1004 per year. If you're a 40% taxpayer, it'll cost £1,661 a year.
What is the BiK rate for electric vehicles?
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 2% to encourage their use as company cars, from 2021.
This means that the same Nissan Leaf 40kWh bought in 2021 as a company car will cost £128 a year to tax for 20% taxpayers and £255 for 40% taxpayers. In 2019, and for the first time ever, the government has not confirmed BiK rates three years in advance so tax bands for the tax year 2021/22 are not yet known.
BiK rates for PHEVs and hybrids
Because BiK rates are determined by carbon-dioxide emissions, plug-in hybrids and hybrids 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 the BiK rates for hybrids and PHEVs in the UK:
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 the battery is leased separately by the employer on behalf of the employee, this has to be listed as another 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 subjected to a van benefit charge. This is set at a flat rate of £3,350 for the 2018/2019 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 40% of the liability.