How much is company car tax on electric cars?

UK’s million or so company car users pay no Benefit-in-Kind tax if they have an electric car in the 2020/21 financial year

Full electric cars are exempt from Vehicle Excise Duty (VED), but you still have to pay Benefit-in-Kind (BiK) tax if you’re going to run one as a company car.

However, for the 2020/21 financial year, the BiK rate for zero-emissions company cars was set at 0 per cent by the government, so there’s nothing to pay until April 2021, at which point it goes up to just 1 per cent, so your bills will still be tiny.

How does company-car tax work on electric vehicles?

There are two parts to company-car tax – what the company pays and what the employee pays – and the amounts depend on the car’s value, its CO2 emissions and the income-tax bracket of the employee.

The amount 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) and its CO2 emissions. 

By contrast, the amount that the employee has to pay is slightly more complicated, and is calculated using the following formula: (P11D value) x (BiK band) x (tax bracket).

For example, a Nissan Leaf 40kWh in Acenta trim has a P11D value of £29,790 and its BiK band for 2021/22 is 1 per cent. So, if you’re a 20 per cent taxpayer, you’ll pay £59.58 in BiK tax, whereas a 40 per cent earner will pay £119.16 in the same period.

Will the BiK rate for fully electric cars change?

As you saw above, the key to BiK tax is the BiK band. The government sets this, and it is 0 per cent for all fully electric cars in the 2020/21 tax year.

In 2021/22, the BiK rate for these vehicles will go up to 1 per cent, and then in 2022/23 the rate will be 2 per cent, so an electric company car will continue to be a very affordable pick.

Beyond that, rates have not been confirmed, although they’re likely to creep back up as more and more electric cars join company-car fleets.

Is the BiK rate different for PHEVs and hybrids?

Plug-in and other hybrids also incur BiK, calculated in the same way as above. From the 2020/21 financial year onward, the cost depends on how far they can be driven in electric mode, as well as their CO2 emissions.

There are many popular plug-in hybrid company cars that can cover between 30 and 39 miles on electric power alone; their drivers pay BiK at 10 per cent. Those that can go even further (40-49 miles) see the rate fall to 6 per cent. Either way, it’s far less than the 20 per cent-or-more rates that apply to petrol and diesel cars.

Are vans liable for company-car tax?

If your company gives you a van for private use, you’ll pay a ‘van benefit charge’ instead of company-car tax. This is £3,490 for normal vans, but employees pay 80 per cent of that figure on an electric van.

Is the waiving of electric car company car tax a progressive move by the government? Have your say in the comments...

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