Company Car Tax on Electric Cars
Electric cars are becoming more popular and more accessible as each year goes by. One of the reasons is that they attract low benefit in kind rates, and can be a really cost-effective option when selecting and then running a new company car.
The government is clearly trying to push drivers and businesses towards investing in the best low emissions company cars through the use of tax incentives and, as a result of government policy, there is now a considerable electric car business tax benefit.
Drivers pay Benefit-in-Kind tax on company cars in line with the vehicle’s emissions. But, at a time when there is currently a 4% surcharge for choosing a diesel car, there is a potential tax benefit for any drivers opting to go for an electric company car.
Electric car benefit-in-kind (BIK) tax treatment is significantly more beneficial than that for conventional engine cars, especially diesels.
If you are thinking of choosing an electric car, or are doing your research to determine if one could work for you, here’s a comprehensive guide to how the tax is calculated for electric company cars. Read on to understand the benefit it kind tax regime, so that you know how much you’ll pay, and can decide if an electric vehicle would suit.
Do you pay company car tax on electric cars?
In 2019, the Government announced that company cars producing no CO2 emissions would attract a zero percent Benefit-in-Kind tax rate from April 2020, meaning you would pay no company car tax on a pure electric car for that tax year.
The zero percent rate also applied to vehicles, first registered from 6 April 2020 and producing between one and 50g/km of carbon dioxide, that are capable of more than 130 miles on battery power alone.
These rates would then increase to 1% for 2021/22 and 2% for 2022/23 for vehicles registered after 6th April 2020.
In the March 2020 Budget, the chancellor announced that the BiK rates for all company cars for the tax years 2023/2024 and 2024/25 tax year would remain at the 2022/23 levels.
What is the tax on electric cars?
Up until the 2024/25 tax year, two tables of benefit in kind rates will be in operation; one for vehicles registered before 6th April 2020 and one for vehicles registered after that date. The full benefit in kind tables can be found below:
Cars First Registered before 6th April 2020
Cars First Registered from 6th April 2020
Diesel cars will continue to be subject to the 4% premium on the above rates, but those meeting the latest RDE2 rules on nitrogen oxide emissions will be exempt from this.
From an individual taxation liability perspective, someone that choices an electric vehicle over a combustion-engine equivalent will be subject to much less tax than they would otherwise. If an electric vehicle would suit an individual, and they could be selected from a company car choice list, then it makes the most financial sense to choose one.
Examples of electric car tax benefits
Here are some illustrations to compare the electric car benefit in kind to a similar diesel equivalent.
The illustrations show that electric cars have a much more advantageous tax treatment.
Battery only or Hybrid?
The availability of hybrid powertrains has given drivers/companies the chance to select more environmentally sound vehicles without being limited by the perceived constraints of battery only propulsion, such as electric range.
From a benefit in kind tax perspective though, selecting a hybrid doesn’t maximise a driver’s tax position.
Taxation issues for your company
Whilst an electric company car may make sense from a tax perspective for a driver, they are also becoming more attractive for employers thanks to accounting allowances.
From April 2021, cars with CO2 emissions of 0g/km will be eligible for the 100% first-year allowance while those business cars with CO2 emissions not exceeding 50g/km will be eligible for writing down allowances at the main rate of 18%, while such cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the rate of 6% (previously 8%).
In the March 20 Budget, the Chancellor also announced the exemption of zero emission cars from the Vehicle Excise Duty (VED) ‘expensive car supplement’. Prior to the Budget, electric vehicles, such as a Tesla Model S costing over £40,000 would be subject to a £320 VED supplement. It means that all fully electric cars are exempt from VED.
The fact that electric vehicles are more expensive to acquire than traditional combustion-engined equivalents has meant that they haven’t appeared on choice lists that are governed by on the road cost. But as the tax landscape is changing, the fact that an electric vehicle is more expensive, counter-intuitively doesn’t mean it will actually end up costing more.
The electric vehicle numbers add up
Electric vehicles have been available for a number of years now and adoption has been growing, the government is clearly focused on encouraging more drivers into electric and away from petrol and diesel.
From a choice perspective, the range of cars available from vehicle manufacturers is increasing and electric range, i.e. the distance that they will travel on a single charge is increasing all the time too. From a charging perspective, the infrastructure available is also increasing and improving all the time.
Electric vehicles are becoming a practical option for more drivers than ever before. For company drivers that want to select an electric car, the taxation treatment of them will encourage more companies to add them to their choice lists.
If you are interested in opting for an electric car, CLM has produced a range of guides that you will find useful: