How much is the Benefit-in-Kind company-car tax on an electric car?
The company-car tax, or BiK, on electric cars is set at just 2% right now and for the next few years, making a zero-emissions vehicle a great choice for business users
All electric cars – whether they cost £25,000 or £125,000 – currently attract a Benefit-in-Kind (BiK) company-car tax rate of just 2%. In comparison, petrol and diesel-powered cars attract a BiK rate of up to 37% based on their emissions, and even the most efficient plug-in hybrids only reach around 8% BiK rates.
It’s true that until recently you didn’t have to pay any company-car tax for an electric car, but the 2% BiK will stay in place until the 2024/25 financial year. Plus, EVs are still exempt from road tax (also known as Vehicle Excise Duty), as well as the London Congestion Charge until 2025, when they will incur a charge.
For those still wondering what Benefit-in-Kind company-car tax is, the system was introduced in 2002 to encourage both businesses and employees to opt for low-emission vehicles when choosing a company car. The tax rates are linked to the car’s CO2 emissions, with cheaper, more-favourable rates for lower emitting vehicles and making zero-emissions electric cars the cheapest company-car option by far.
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 the salary of the employee using it. For a full explanation, keep reading our complete guide to how Benefit-in-Kind works and how it applies to electric cars.
How company-car tax and BiK work for electric cars
When an employee receives a vehicle for personal use from their employer, this is classed as a 'perk', which is taxable. The more formal name is a Benefit-in-Kind (BiK). All perks other than income or remuneration packages are considered to be benefits in kind.
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 – 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 rate is determined by the BiK 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 BMW i4 eDrive 40 Sport had a P11D value of £53,425. The car's BiK band is determined by the Government. For the financial year 2022/23, it's set at 2%. This means the BiK value for the i4 is £1,068.50, as the BiK value is calculated by multiplying the BiK band by the P11D value (53,425 x 0.02, in this case).
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 £213.70 per year in this example. If you're a 40% taxpayer, it'll cost £427.40 annually to run this car.
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 all fully electric cars on sale, the BiK rate is 2% during the 2022/23 financial year. It's currently set to remain at that level 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 tax 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 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)||2022/23 rate (%)||2023/24 rate (%)||2024/25 rate (%)|
|1-50||More than 130||2||2||2|
|1-50||Less than 30||14||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 at 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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