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 2021/2022 financial year, the BiK tax rate on zero-emission company cars is just 1% and this will increase to 2% in April 2022, staying at this level until April 2024.
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 N-Connecta is an example of a model you might be offered as an electric company car. Its P11D value is £30,440. The BiK for this car, as determined by the government, is 1% of the P11D value for the financial year 2021/22, so the BiK value is £304.
The amount the employee pays depends on their income-tax bracket. If they are a 20% taxpayer, they will pay £61 per year. If they pay 40% tax, they will pay £122 per year.
By way of comparison, an equivalent diesel-engined Ford Focus 2.0-litre EcoBlue Titanium automatic with a P11D of £26,040 emits 128g/km of CO2, placing it in the 33% BiK band. This costs £1,701 for 20% tax payers and £3,402 for those in the 40% band.
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 £3,500 to tax under this system but as of the 2021/2022 financial year, fully electric vans are tax exempt.
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