Company cars might not be as common as they once were, but seeing as a great number of people continue to drive them, it can still be a hot topic.
Diesel and hybrid cars do receive company tax incentives as well, but by far the most generous tax breaks are reserved for electric vehicles alone.
Which is why we've devoted a whole post to it, covering what a company and its employees must pay towards company car tax on electric cars and how this amount is calculated.
What is Company Car Tax?
Because electric company cars (or any company car, actually) are seen as a benefit by the taxman, they're subject to tax.
This company car tax is also known as Benefit in Kind (BiK).
How Benefit in Kind (BiK) Tax Is Calculated
How much benefit in kind tax you pay on a company car is determined by a sliding percentage scale based on how much carbon dioxide (CO2) a car emits and how much the car itself is worth.
So the higher the CO2 output, the higher the percentage of company car tax/benefit in kind tax that you’ll have to pay. And the higher the car’s value, then the more money that's going to equate to.
How Much is Tax On Electric Company Cars?
In the case of fully electric cars, they obviously emit far less or no CO2 on the roads, which fortunately means they're subject to far less tax than their petrol and diesel counterparts.
The BiK rate for electric cars is currently 2%, and it will remain at that level for the 2023/24 and the 2024/25 financial years.
However, after that time it's going to rise in the following 3 years, so in 2025/26 the rate will be 3%, in 2026/27 it will be 4% and in 2027/28 it will be 5%. But despite the rise, it's worth pointing out that these rates will still be far lower than those for conventional petrol and diesel cars – which might attract BiK rates of 25%.
So, to give you an example of how company car tax on an electric company car works in practice . . . let's say you have an electric company car costing £40,000. Well, 2% of £40,000 is £800, so that’s the amount of the car’s value that is taxable.
But it's important to note that you don’t pay all that taxable value: you only pay a percentage of it based on your salary and what tax bracket it falls into. So if you're earning more, you'll probably pay more. That means if you're a 20% tax rate payer, then every year you will owe the taxman £160, because 20% of 800 is 160.
Are Electric Cars Good As Company Cars?
Yes, especially on a purely taxation basis. The savings here are significant and plain to see.
Plus, there's plenty of electric SUVs on the market offering bags of space for colleagues and every work need. Who said an electric car has to be small?
Couple of things to bear in mind, though . . .
The first is that electric vehicles, whilst seeing a drop in price, still tend to be more expensive to lease or buy than their petrol and diesel counterparts, meaning that the vehicle itself will likely be harder for your company to get a hold of in the first place. Also, its taxable P11D value will be higher (although this drawback is arguably countered by the reduced BiK rate for EVs that we've already mentioned).
As a company, you'll also need to consider mileage and the travel time of your staff, factoring in recharge time over long distances and charging point locations. You'll also want to consider whether employees are able to charge the electric car at home overnight.
Other Benefits of Having An Electric Company Car
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Good for the environment
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Noiseless drive
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Similar driving style to automatics
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Cheaper to run
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Ultra-modern
Is The BiK Rate Different for PHEVs and Hybrids?
You also pay benefit in kind tax on plug-ins and other hybrids, which is mostly calculated in a similar way as above. From the 2020/21 financial year onward, the cost depends on the maximum distance that they can be driven in electric mode, in addition to their level of CO2 emissions.
For example, if a plug-in hybrid company car that has CO2 emissions of between 1 and 50g/km can cover below 30 miles in electric-only mode, then it'll be subject to a 14% BiK tax band. On the other hand, if it can cover between 30 and 39 miles on just electric power alone, then you would pay BiK at 12%.
Hybrids that can travel even further on electric-only mode will see the rate fall even further. So if the hybrid vehicle can travel 40-69 miles, then BiK would drop to 8%, whilst an electric-only range 70-129 miles would attract 5% BiK, and a range of over 130 miles would see BiK drop down to just 2%. But unfortunately, not many hybrids are capable of that kind of range.
Plug-in Vehicle Grants
Companies driving electric vans, taxis and trucks can also qualify for Government grants. These grants vary in size depending on the type of vehicle, with small vans eligible for a grant worth up to £2,500 that's contributed by the government, and large trucks for up to £25,000.
Are Electric Vans Liable to Company Car Tax?
If you've been provided with a zero emission van for personal use, then that van is not subject to a van benefit charge. The charge is currently set at £3,960 for the 2023-24 financial year for all other vans.
However, this is set to change in the year 2025, at which point in time the government seeks to align the charge for pure electric vans with that for all other vans.
What Other Incentives Are There For Businesses to Go Electric?
Reduced road tax: Yep, electric vehicles are currently exempt from paying road tax (vehicle excise duty), although from 2025 that's going to change as EV drivers will start to pay for annual road tax, and at the same rate as petrol and diesel drivers.
Workplace charging scheme: It's a great help and will provide you with 75% of the installation and purchase costs of EV charging points at your workplace, up to a maximum of £350 per socket and 40 sockets per site (per individual applicant, that is). So, for example, a single company could get up to 40 grants for 40 sockets at one location, or 40 grants for 40 sockets spread over 40 locations.
Good Publicity: It might not win your company a Nobel Prize, but going green as a company not only means that you will pay less with electric company car tax, but also really help benefit PR and your public image.
Summary
Well, that's about it from us.
Hopefully, you now know all about what company car tax is and the amount that you can expect to pay on an electric vehicle.
Happy driving!