Electric company-car tax explained
A guide to electric company-car tax costs for employees and employers
Many employers now offer electric vehicles as part of their company-car list. Whether you’re an employer looking to ‘go green’ with your fleet or an employee who has been offered access to an electric company car, you might wonder how much it will cost you in tax and how much you could save.
The government is offering significant tax breaks to encourage the adoption of electric company cars over petrol, diesel and even hybrid models. While electric company cars are exempt from VED (vehicle excise duty, also known as road tax) you still have to pay the Benefit-in-Kind (BiK) tax but the way BiK is currently structured makes electric cars by far the cheapest option.
What is BiK tax and how does it work for an electric company car?
BiK is a form of taxation that's applied to any company car offered by an employer as a benefit. Company-car tax is payable by both the employer and employee. The amount is calculated depending on the car’s value, CO2 emissions and income-tax bracket of the employee.
For the 2023/2024 financial year, the BiK tax rate on zero-emission company cars is set at 2%, and will remain at this level until the 2025/2026 financial year when it rises to 3%. In the following two financial years, it will go up by a further percentage point each year.
How much does the company pay in tax?
The company must pay tax based on a combination of the P11D (HMRC’s valuation of the car, including VAT and delivery fees) and how much CO2 the car emits.
How much does the employee pay in tax?
The employee must pay a tax based on the following equation: (P11D value) x (BiK band) x (income-tax bracket). You can use the government’s company car tax calculator to work out how much you’d have to pay.
The Nissan Leaf Tekna is an example of a model you might be offered as an electric company car. Its P11D value is £31,940. The BiK for this car, as determined by the government, is 2% of the P11D value for the financial year 2023/24, so the BiK value is £639.
The amount the employee pays depends on their income-tax bracket. If they are a 20% taxpayer in England, they will pay £128 per year. If they pay 40% tax, they will pay £256 per year. In Scotland’s maximum 47% bracket, that goes up to £300.
By way of comparison, a typical petrol alternative, such as the Vauxhall Astra Ultimate with a 1.2-litre turbocharged engine and an automatic gearbox has a P11D value of £32,555. While its 131g/km of CO2 seems modest, this puts it into the 31% BiK bracket, for a £10,092 BiK value. This means a 20% taxpayer would be shelling out £2,018 per year, and a 40% taxpayer a whole £4,037 – so the savings for company car EV drivers can be enormous.
Is tax on an electric company van calculated the same way?
Electric vans fall under a different taxation system known as the ‘van benefit charge’. A conventionally powered van costs a flat rate of £3,960 to tax under this system but as of the 2023/2024 financial year, fully electric vans remain tax exempt.
Whether its on the company or you're after your own personal EV, check out our list of the top 10 electric cars on sale right now.
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