Fleet & business

Company car drivers

Company car drivers can save thousands of pounds in tax and fuel bills

Preferential benefit in kind (BIK) tax rates and reduced fuel costs means that more companies should be offering plug-in vehicles to company car drivers.
Key points:

  • Over a four year period, company car drivers can save themselves almost £5,000 in BIK tax (see table below)
  • Nearly 70% of company car drivers says they would go electric, if employers offered plug-ins, according to Go Ultra Low research
  • Finding the right vehicle is key for all company car drivers

Growing demand from company car drivers

The motoring tax regime is designed to favour the take-up of electric cars and vans, while reduced fuel costs plus additional in-life incentives add to the appeal of plug-in vehicles for company car drivers.

A 2016 survey commissioned by Go Ultra Low found that of those UK company car drivers who are not currently able to go electric, 69% said they would be ‘likely’ to choose an EV as their next company car, if they were made available. The incidence is higher among companies who do already offer electric vehicles to their employees, with 86% of respondents saying they would be likely to consider an electric car next time around.

The survey also found that only 25% of businesses currently offer electric company cars to employees. It’s clear that companies have a role to play in boosting the numbers of electric vehicles on our roads, and this survey data proves that employees want to drive them.

Offering electric cars could make fleet managers more popular too – the potential reduction in whole life costs for plug-in vehicles might also mean they can offer their staff a more attractive car.

Benefit in Kind tax

The provision of a company car that is available for the employee’s private use is treated as a benefit in kind (BIK). As such, it is subject to Income Tax (for the employee) and employer Class 1A National Insurance Contributions. The benefit is valued as an ‘appropriate percentage’ of the car’s total list price (manufacturer’s list price when new plus any accessories – the value reportable on a P11D form). The appropriate percentage is dependent upon the car’s CO2 emissions.

The below table compares the BIK tax costs for a four year period between 2017 and 2021. It compares a zero emission vehicle with a P11D of £30,000 and an identically priced petrol car that emits 104g/km CO2, revealing the yearly savings for lower (20%) and higher (40%) rate drivers.

BIK tax costs for a four year period between 2017 and 2021

£30,000 P11D value 2017/18

20%/40%

2018/19

20%/40%

2019/20

20%/40%

2020/21

20%/40%

Total (4 years)

20%/40%

Zero emission £540/£1,080 £780/£1,560 £960/£1920 £120/£240 £2,400/£4,800

 

Petrol (104 g/km CO2) £1,140/£2,280 £1,260/£2,520 £1,440/£2,880 £1,500/£3,000 £5,340/£10,680
Saving £600/£1,200 £480/£960 £480/£960 £1,380/£1,760 £2,940/£4,880

Source: HMRC, Go Ultra Low calculations

Over four years, up to including 2020/21, a lower rate company car driver would pay £2,940 less in BIK tax driving the electric vehicle, while a higher rate taxpayer would pay £4,880 less.

Tax changes from 2020/21 are designed to provide further incentives to employees to choose electric vehicles as company cars. A total of 11 new bands for ultra-low emission vehicles below 75g/km will be introduced – five are linked to the number of miles a car can travel on electric power alone – including a separate zero emission band. Vehicles emitting 51-54g/km will be taxed at 15%, after which a one percentage point increase applies per 5g/km CO2.

Salary sacrifice

Salary sacrifice car schemes are a popular benefit, allowing employees to sacrifice a portion of their monthly salary in return for a new car. Savings are generated because the employee is no longer liable for income tax on the proportion of the salary they sacrifice. It also has the added bonus of improving employee satisfaction and retention.

Plug-in vehicles are eligible for tax benefits if purchased through a salary sacrifice agreement made between an employer and employee, where the employee’s cash remuneration is reduced in exchange for an equivalent BIK.

Due to the reduction in pay, this results in a reduced income tax liability for the employee and reduced national insurance liability for both parties.

Plug-in vehicles were exempted from the reforms announced in the Autumn Statement 2016 to remove the income tax and employer NICs advantages resulting from such schemes, whereby the taxable value of the BIKs provided through salary sacrifice is fixed at the higher of the amount of cash forgone or the amount calculated under the existing BIK rules.

Increasing choice

An ever-increasing selection of electric cars is playing a key role in plug-in vehicle uptake surpassing record levels. Almost every vehicle manufacturer now offers a low or ultra low emission vehicle – this wide selection enables motorists to choose the most appropriate car for their needs.

The broad variety of plug-in hybrid and pure electric cars on the market is a marked improvement on the eight electric models available to drivers in 2011 when government first introduced the Plug-in Car Grant. The range of products now extends to more than 20 pure electric and 15 plug-in hybrid vehicles, from city cars and SUVs to sports cars and family hatchbacks.

Charging options

Go Ultra Low research shows that 98% of drivers travel less than 100 miles daily – well within the range of pure electric vehicles and easily achievable in a plug-in hybrid. Also, Chargemaster analysis of EV refuelling behaviour shows that more than 90% of all electric vehicle charging takes place at home – which means that plug-in vehicles could provide added convenience for thousands of company car drivers.

Government provides financial support for businesses and their employees to install chargepoints at work and at home. The Workplace Charging Scheme offers a grant of £300 per socket for businesses to install EV chargepoints, up to a maximum of 20 sockets. All private and public sector organisations are eligible to claim the grant, as long as they have dedicated off-street parking for staff or fleet use.

For employees, the Electric Vehicle Homecharge Scheme offers up to £500 towards having a chargepoint installed. Some vehicle manufacturers, energy companies and chargepoint suppliers may also contribute additional support, making the entire installation process free of charge. Individuals who are named by their employer as the primary user of an eligible electric vehicle qualify for the scheme.

Mileage reimbursement

It is also easy for easy for employers to reimburse mileage. Electricity is not classed as a fuel by HM Revenue and Customs (HMRC) so for mileage reimbursement – whether using Advisory Fuel Rates (company cars) or Approved Mileage Allowance Payments (privately-owned cars) – electric and hybrid cars are treated in the same way as petrol and diesel models.

Advisory Fuel Rates for plug-in hybrids and range-extended electric vehicles are based on the size of the car’s petrol or diesel-fuelled engine. For pure-electric vehicles, many fleets reimburse ‘fuel’ used by electric vehicles at a pence per mile rate, calculated to closely reflect actual cost using available data: manufacturers’ figures for miles per kilowatt (kW) and electricity cost data from the Energy Savings Trust, which publishes representative costs for domestic electricity.

Other incentives

On the road, drivers of plug-in electric cars are exempt from paying the London Congestion Charge and T-Charge. Several towns and cities in the UK offer free parking for electric cars – and some even offer free charging.

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