The ultimate guide to electric car benefit in kind

There are many benefits of switching your company car fleet to electric. Everything you need to know about the tax advantages of using EV company cars is in this guide – we’ve done the research, so you don’t have to.

How do low BiK rate Electric Vehicles Benefit Companies?

A low BiK taxation rate shows that, in addition to being low or zero-emission, the vehicle also has a good all-electric range, meaning that company-funded refuelling charges can be reduced by as much as £1000 per year for 10,000 miles (HMRC classes electricity as a fuel).

They can offer an electric company car to new and existing employees as part of an enhanced package with the reassurance that until at least by 2025, it is a tax-saving measure that benefits the employee.

Employers pay Class 1A National Insurance Contributions (NIC) on BiK for company cars and fuel at 13.8%. As with company car tax, the NIC is directly linked to the P11D value and the CO2 emission figure of a vehicle. This reduces the amount of National Insurance they have to pay in line with the reduction on BiK. 13.8% of a 20% BiK is significantly lower for 13.8% of 1% BiK rate.

And finally, Benefits in Kind taxation will no longer apply to electric company vans which makes offering one as part of an enhanced salary package very beneficial for the employee.

How Do Low BIK rate Electric Vehicles Benefit Employees?

Very simply, employees pay less tax and National Insurance for a considerable benefit in kind. The BiK tax rate for a fossil fuel car is 20%. When going fully electric, this is reduced down to 1% for 2021 and 2% from 2022 to 2025. They also have private use of a vehicle that has all the benefits of an electric car, including lower costs-per-mile than a petrol or diesel vehicle. BiK on a fossil fuel car is calculated at 20% as standard.

How is BIK calculated for EV’s?

Tax is payable on a company car if it is available for private use by an employee, company director or their family or household. It’s worth bearing in mind that in nearly all cases, private use includes journeys between home and work. The tax charge is lower for Electric Vehicles and Plug-in Hybrid Electric Vehicles.

If an employer provides a taxable benefit, such as the use of a company car, the taxable benefit has to be valued. For most types of benefit-in-kind, the law sets out how to work out the value.

The formula, for calculating your company car BiK rate, is P11D value x BiK rate % = BiK value, then you multiply the BiK value by your income tax band (20-45%).

P11D is a form submitted to HMRC to indicate the value of a company vehicle for tax purposes. It is calculated based on the list price of the vehicle, VAT, optional extras and delivery fees.

For the lowest company car BiK rates of 1%, an electric vehicle must not emit C02 at levels of more than 50 g/km. Those with an all-electric travel range above 130 miles qualify for the highest discounts and those with a range below 30 miles qualify for the lowest.

Here is an example of a fully electric car (BEV) for the tax year 2021 to 2022 at 1% and then from 2022 to 2025 at 2% (rates have already been set):

For an assumed P11D Value of £33,000

With no emissions and a range above 130 miles, the BiK tax rate will be 1% in 2021 to 2022 and 2% from 2022 to 2025

The BiK Value from 2021 to 2022 will be  £33,000 x 1%   = £330

The BiK Value from 2022 to 2025 will be  £33,000 x 2%   = £660

The BiK value with no incentive would be £33,000 x 20% = £6600

To get the amount your company car will cost you in tax per year, you simply multiply the BiK value by your income tax banding (20-45%):

2021 – 22

£330 x 20% = £66.00 per year / £5.50 per month

£330 x 40% = £132.00 per year / £11.00 per month

£330 x 45% = £148.50 per year / £12.38 per month

2022-25

£660.00 x 20% = £112.00 per year / £11.00 per month

£660.00 x 40% = £164.00 per year / £22.00 per month

£660.00 x 45% = £297.00 per year / £24.75 per month

So to put this into a table and compare against a company vehicle costing the same amount but with no BiK incentive and therefore a BiK rate of 20%.

Cost of vehicle £33,000 – BiK Incentives for Tax Years 2022 to 2025 at 2%

The table below shows the BiK taxation bands for electric vehicles purchased before 06/04/20 and then after 06/04/20 and up to the end of the 2025 tax year. The different rate of BiK on electric cars UK makes the transition from NEDC to WLTP assessment fair to all drivers. In the tax year 2023, BiK rates will revert to a single scale and stay at consistent levels until 2025.

How is BIK calculated for Plug-in-Hybrid Electric Vehicles?

Whilst the BiK tax discounts are primarily designed to incentivise pure electric vehicles, for many commercial and private buyers a Plug-in Hybrid is still a popular option.

Moving from NEDC to WLTP Testing and the effect on BiK for PHEVs

This represents a significant change in the way emission and consumption figures are reported and as a result is very important, particularly to BiK taxation bands for Plug-In Hybrid vehicles. It also throws a complication into assessing BiK for company electric vehicles until rates are aligned in the 2023 tax year.

Currently, the best achievable 2021 BiK tax for a PHEV is the 7% band. The vehicle must have an electric-powered range of between 40 and 69 miles and produce under 50g/km CO2 emissions.

The table below shows the percentage BiK Rate for PHEVs according to their WLTP assessed electric range, bearing in mind that the normal BiK taxation rate is 20% for fossil fuel-powered company cars.

Whilst the BiK tax discounts primarily incentivise pure electric vehicles, for many commercial and private buyers, the Plug-in Hybrid is still a popular option. Here are 4 reasons why this might be the case:

• Range anxiety is very easy to understand. If a pure electric vehicle runs out of battery power, it stops. Contrarily, if a PHEV is running out of battery power you can simply switch to fossil fuel power.
• Under-developed charging infrastructure. Again, the fear here is that you run out of battery power and there is no available charging point nearby. A substantial and evenly distributed charging network needs to exist before the confidence is there to move to fully electric-powered travelling. It has been estimated the UK needs to have 25 million charging points for electric vehicles. As of 1^st July 2020, there were 18,265 public electric vehicle charging devices available in the UK. Of these, 3,206 were rapid devices.
• Battery to weight ratio, particularly for cargo vehicles is an issue. Until battery technology improves further, a battery pack that produces a top-level electric driving range can be a rather large, heavy and cumbersome thing.
• Charging times. As a simplified ratio, the larger the battery pack, the more range it produces and the longer it takes to fully recharge. Home charging systems that produce faster charge times and allow drivers to utilise cheaper electricity tariffs are available and provide some mitigation. There is also some grant aid administered by the Office for Zero-Emission Vehicles (OZEV) available to partially fund dedicated home charging stations.

How is BIK calculated for Vans

Alongside efforts to encourage commercial and private uptake of electric-powered cars, in the 2020 budget the Chancellor announced that BiK tax rate for a zero-emission van will fall to 0%. This measure is designed to accelerate the uptake of zero-emission vehicles in the commercial and fleet cargo sectors.

This means that if an employee has use of a company van that they are also allowed to use privately, they can do so without triggering the same taxes that apply to company cars. This represents a significant move to support EV adoption for commercial vehicles.

Undoubtedly, with the type of range that the latest editions of fully electric vans are capable of, most companies should take advantage of the 0% BiK rate for fully electric vehicles.

Even so, a PHEV model with shorter range zero-emissions driving, plus the ability to still cover long-distance motorway travel might be more practical for some businesses.

What is a Van?

At first, this should seem obvious, but there is an official HMRC classification for vans that is worth clarifying when considering the best company car for benefit in kind and it is as follows:

“A vehicle primarily constructed for the conveyance of goods or burden with a gross vehicle weight when fully laden not exceeding 3,500kg.” This covers panel vans with two or three-abreast seating, chassis cabs fitted out with conversions, two-seat commercial SUVs and pick-up trucks.

The best way to double-check if a vehicle is classified as a van is to consult the V5C registration document. If the V5 says N1 or N2, then it’s a van. If the V5 states M1 or M2, then it is considered a car.

Why EV’s are likely to be the best business choice for company car’s moving forward

In a recent budget, the Chancellor laid out a detailed roadmap for companies and drivers on how the Benefits-in-Kind (BiK) taxation system will incentivise EV adoption for businesses and provide tax incentives for electric vehicles up to 2025 and beyond.

Prior to this, the level of BiK taxation at standard rates often presented employees with such a heavy tax burden that offering a company car was not a worthwhile incentive. In many cases, it was cheaper for employees to use their own vehicle.

With the lower BiK taxation rates for company electric vehicles in place until at least 2025, employers once again have a chance to reinstate the company car as a valuable perk to attract the best candidates for positions in the company.

Increasing the incentive value of an electric company vehicle combined with lower road tax, congestion charges and running costs per mile are all great reasons why companies should start to participate in the plug-in revolution.

Larger businesses are now required to measure and report energy use and greenhouse gas emissions, smaller businesses are encouraged to do this voluntarily. This will eventually be followed by compulsory targets. Fossil fuelled vehicles are going to be phased out and with the current tax incentives and grant aid on offer, now is a great time to get ahead of the game.

So, if you want to make the switch to an electric fleet, contact us today and discover how we can help your business’ charging needs. Give us a call at 03333 44 96 99 or get in contact. 

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