Explanation of the company car tax on electric cars (2023)

Interested in learning more about the company car tax implications of electric vehicles? Don't be surprised anymore...

Company cars may not be as common as they used to be, but around a million people still get this benefit, and an electric car can be a good option for a company vehicle due to the extremely favorable tax implications, as we'll explain here. . .

What is the company vehicle tax?

Company cars are considered a tax benefit and are therefore subject to tax.

This tax is known as Beneficio em Specie (BiK). The amount of BiK tax you pay depends on the carbon dioxide (CO2) emissions and the value of the car. pay, while the higher the value of the car, the more money corresponds to this percentage.

electric carsthey emit no CO2 on the road and therefore pay significantly less tax than gasoline and diesel cars.

Our detailed guide tocompany vehicle taxhas more details

How does the company vehicle tax work?

As described above, the amount of the company car tax depends on the value and CO2 emissions of the car, so your personal tax class is also important.

BiK rates range from 2% to 37%; the dirtiest cars get the highest percentage and electric vehicles receive a 2% fee.

The tax authorities refer to how much a car costs as the P11D value. This price results from the acquisition costs of the vehicle plus VAT, options and shipping costs from new.

What is the tax on company electric cars?

BiK's current fee forelectric carsis 2% and remains at 2% for the years 2023/24 and 2024/25.

Thereafter, it will increase by 1% over the next three years (i.e. 3% in 2025/26; 4% in 2026/27; 5% in 2027/28), although these rates are still well below those of a conventional gasoline or diesel car, he could receive a BiK of 25%.

This means that 2% of the value of an electric car will be taxed now and in the next two fiscal years.

Suppose you have a company electric car costing £40,000; 2% of £40,000 is £800 – this is the taxable value of the car.

But you don't pay the full taxable amount: You pay a percentage based on the tax bracket your paycheck falls under.

If you pay a 20% tax rate, you pay 20% of £800 each year, so you owe the Treasury £160 per year.

If you pay a 40% tax rate, you pay 40% of £800 each year, so you owe the Treasury £320 per year.

Explanation of the company car tax on electric cars (1)

Company Vehicle Tax Comparison

Just to emphasize how attractive the company's electric cars are, let's compare the older model to a gas-powered model. For simplicity we will use a 40 per cent employee and a £40,000 car in both cases.

The EV driver pays 40% of 2% of £40,000 a year to the taxpayer, which is £320 a year or £26.67 a month.

The gasoline car emits 130 grams per kilometer (g/km) of carbon dioxide (CO2), which puts the car at the BiK rate of 31% for this fiscal year.

Since 31% of £40,000 equals £12,400, an employee with a tax rate of 40% would pay £4,960 per year or £413.33 per month in tax.

So you would save over £4,500 a year if you went for the electric option.

What about the tax on hybrid company cars?

BiK's rates for company cars also depend on the distance a car can travel on battery power. That's a big number for electric vehicles, of course, but it could be quite small for hybrids.

Conventional hybrid vehicles, which cannot be charged at a socket, can generally drive less than a kilometer in electric mode, although they also typically emit more than 50g/km of CO2, so they are treated like gasoline cars and cars. Conventional in all respects. Diesel through tax.

However, plug-in hybrids (PHEVs) officially tend to emit less than 50g/km of CO2 and can go a significant distance on battery power, so they get more favorable treatment.

The further a PHEV can go on battery power, the lower its BiK rating will be. Assuming that all PHEVs in question emit less than 50g/km of CO2, these rates are:

  • If a PHEV can drive less than 30 miles on battery mode, it will receive a 14% BiK rate for the next three tax years.
  • If a PHEV can drive 30 to 39 miles on battery mode, it will receive a 12% BiK rate for the next three tax years.
  • If a PHEV can drive 40 to 69 miles on battery mode, it will earn a BiK rate of 8% for the next three tax years.
  • If a PHEV can travel 70 to 129 miles on battery mode, it will earn a 5% BiK rate for the next three tax years.
  • If a PHEV can drive more than 130 miles on battery mode, it will receive a 2% BiK tax for the next three tax years (and will effectively be treated as a pure electric car by the tax authorities).

Keep in mind, however, that higher-end PHEVs can only officially go about 70 miles in electric mode; Therefore, the categories based on more mileage are an effective test for the future of the next PHEVs.

Are electric vans subject to company vehicle tax?

This depends on how the van will be used and whether it is an electric van.

If a gasoline or diesel van is used solely for work purposes (including commuting), you do not pay tax on it.

There is also no tax on the "minor" private use of a gasoline or diesel van, for example, for occasional trips to the depot or to drop a child off at school on the way to work.

However, if you use the van "significantly" in private, treat it e.g. B. as a private car using it to visit friends every weekend; then a petrol or diesel van is subject to a fixed value of £3,600 for tax year 2022/23; If you pay a 20% tax rate, you pay 20% of that, so £720 a year.

However, if the van is electric, you pay nothing even if you use the van as a private vehicle in your spare time.

From the new tax year beginning 6 April 2023, the flat tax base will increase from £3,600 to £3,690 in line with inflation.

Explanation of the company car tax on electric cars (2)

What other incentives are there for companies to switch to electricity?

Businesses are encouraged to hire employeeselectric carswith various other methods.

These include:

Accounting scheme in the workplace.

This covers 75% of the cost of buying and installing EV charging points on a site, up to a maximum of £350 per plug and 40 plugs per site per candidate, i.e. h a business can get 40 leases for 40 charging points. sale at one location, or 40 leases for 40 outlets spread across 40 locations.

Explanation of the company car tax on electric cars (3)

Bonuses for plug-in vehicles

Businesses can also get government subsidies for electric vans, trucks, and taxis. These grants vary by vehicle type, with small vans eligible for up to £2,500 grant and large trucks up to £25,000 from the government.

Reduced Employer NIC

Employers must pay Social Security Contributions (NIC) on wages, as well as benefits such as company cars. NICs for company cars are based on the vehicle's carbon emissions, so rates are much cheaper when an employer provides an electric company car.

Reduced road tax

electric carsthey are currently exempt from motor vehicle tax (Kfz tax), but will be treated as gasoline and diesel vehicles for annual road tax purposes from 2025.

Other incentives

Company electric vehicles are also subject to a favorable capital deduction, so companies can deduct a higher value from their business profits for tax purposes.

salary sacrifice schemesThey are also more attractive toelectric cars, while other benefits include an attractive advisory fuel rate for charging electric vehicles paid for by your company, and waived emissions and congestion charges if your vehicles power them as part of the work they are used for.

Are electric cars good company cars?

From a purely fiscal point of view, electric vehicles are fantastic business cars; The savings are significant and clearly visible.

However, there are a few things to keep in mind: The first is thiselectric carsAlthough cheaper, they tend to be more expensive than comparable petrol and diesel cars, so even for businesses the vehicle may be more expensive and your P11D taxable amount will be higher (although the latter aspect is more than offset by he ). reduced BiK rate that electric vehicles attract).

Businesses must also consider the distances employees travel and charging time when employees travel long distances and when employees can charge their vehicles overnight at home.

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