The Government is committed to helping increase the number of EVs on the road in order to meet ambitious climate change targets and improve air quality in major cities.
The way vehicle taxation is structured reflects this priority with a range of incentives. Benefits include the introduction of new Benefit in Kind (BIK) bands for EVs from 2020/21. Government grants, National Insurance savings, exemptions from Vehicle Excise Duty (VED) and special Capital Allowances for ultra-low emission cars and fully electric vehicles have been enhanced.
Tax changes from 2020/21
Tax changes which come into effect in 2020/2021 will help to reduce company car tax bills for drivers. From 6th April, fully electric cars will pay no Company Car Tax (CCT) in 2020/21, just 1% in 2021/22 and 2% in 2022/23.
In addition, the government has introduced five new CCT bands for plug-in hybrid cars which emit 1-50g of CO2/km which will further benefit those EVs that can drive furthest with zero tailpipe emissions. There has never been a better time to switch your fleet or business vehicles to electric.
Benefit In Kind and Class 1A National Insurance
Company car Benefit in Kind (BIK) tax rates are set in advance to enable businesses to plan their future outlay on company vehicles and calculate the financial cost to themselves and employees. Like BIK tax, employers’ Class 1A National Insurance contributions, are linked to a car’s CO2 emissions and P11D (purchase cost) value.
Benefit In Kind explained
Benefits in Kind are benefits which employees receive from their employment but which are not included in their salary or wages. This includes items such as company cars. BIK tax is payable on a company car if it’s available for private use. In nearly all cases this includes journeys between home and work.
How is it calculated?
HM Revenue and Customs calculates that Benefit in Kind is charged based on cash equivalent value of benefit. Typically, employers would submit a P11D form that details any work related, taxable expenses and taxable benefits you’ve received over the tax year, which runs from 6th April – 5th April.
Benefit in Kind may be taxed under PAYE (Pay as you earn) by being offset against personal tax allowances in your PAYE code. If the Benefits in Kind are not included in your tax code for the year when you receive them, the tax may be collected after the end of the tax year.
What is the Benefit in Kind tax on a company car?
Company cars will be categorised into a series of Benefit in Kind bands that are based on a vehicle’s fuel or energy type and its CO2 rating. It’s this band that is weighted as a percentage of the vehicle’s specific P11D value, which would be based on the list price including optional extras, VAT and delivery charges, minus the first year registration fee, annual VED car tax or any Plug-In Car Grant.
In the 2019 / 2020 tax year, a zero emissions vehicle sat in a 16% BIK band bracket. This meant the employee would be liable to pay tax on 16% of the vehicle’s calculated P11D value.
From 6th April 2020, the BIK brackets have been substantially revised. The taxable figure for a zero emissions vehicle now drops to zero. This means there is no BIK tax to pay whatsoever if your company car emits zero tailpipe emissions, while the taxable figure only rises marginally to 1% in 2021 and 2% in 2022, as shown in the table below. The Budget confirmed that the 2% rate will be maintained through to the 2024/25 tax year, providing drivers and employers with company car tax certainty over five financial years.
Further, should your employer decide to install a chargepoint at your home, there is no additional BIK tax to you or them for the privilege. A full breakdown of the Benefit in Kind bands for Ultra Low Emissions Vehicles (ULEV) is provided below.
What if I already drive a company car?
The Benefit in Kind band change is also being taken into consideration retrospectively, meaning that company car drivers that took delivery of their fully electric company car before 6th April 2020 can also benefit from the 0% rule change from 6th April.
The table below shows the new bands and tax rates for tax years 2020 to 2023
For cars first registered from 6 April 2020
|CO2 emissions (g/km)||Electric range (miles)||2020 – 21 (%)||2021 – 22 (%)||2022 – 23 (%)|
|1 – 50||>130||0||1||2|
|1 – 50||70 – 129||3||4||5|
|1 – 50||40 – 69||6||7||8|
|1 – 50||30 – 39||10||11||12|
|1 – 50||<30||12||13||14|
|51 – 54||–||13||14||15|
|55 – 59||–||14||15||16|
|60 – 64||–||15||16||17|
|65 – 69||–||16||17||18|
|75 – 79||–||18||19||20|
|80 – 84||–||19||20||21|
|85 – 89||–||20||21||22|
|90 – 94||–||21||22||23|
|95 – 99||–||22||23||24|
|100 – 104||–||23||24||25|
|105 – 109||–||24||25||26|
|110 – 114||–||25||26||27|
|115 – 119||–||26||27||28|
|120 – 124||–||27||28||29|
|125 – 129||–||28||29||30|
|130 – 134||–||29||30||31|
|140 – 144||–||31||32||33|
|145 – 149||–||32||33||34|
|150 – 154||–||33||34||35|
|155 – 159||–||34||35||36|
|160 – 164||–||35||36||37|
|165 – 169||–||36||37||37|
|170 and above||–||37||37||37|
Take a look at our tax calculator to see how much you could save by switching to electric.
For more information, take a look at the HMRC website.
There are huge potential savings for company car drivers…
For example over a typical three-year agreement, the company car driver of the electric Peugeot 208 would stand to save the equivalent of £8063 in BIK tax, compared to the petrol model.
Vehicle Excise Duty
Fully electric cars are exempt from paying Vehicle Excise Duty (VED) to help support drivers who choose the cleanest, most environmentally friendly cars and vans. All cars that emit less than 75g/km CO2 will pay less road tax in the first year, delivering additional cash savings for plug-in hybrids on your company’s fleet. Fully electric cars are exempted from the “expensive car” supplement until 31st March 2025.
Use our car tax calculator for a full breakdown of the EV tax savings available.
Salary sacrifice enables you to exchange part of your salary for a non-cash benefit from your employer, such as a company car. Salary sacrifice on ULEV vehicles – that’s fully electric vehicles or plug-in hybrid electric vehicles that produce less than 75g/km of CO2 – are a cost-effective and hassle-free way of driving an EV.
Once enlisted on a scheme and a suitable EV is selected, a single monthly payment that covers leasing, maintenance, and insurance is taken directly out of the employee’s salary, before income tax and National Insurance (NI) contributions. This means that both the employee and the employer save money: the employee ends up paying tax on a lesser portion of their salary, while the company also pays fewer NI contributions while helping support more zero-emissions motoring.
Regardless of your role or the size of your business, salary sacrifice schemes can help empower employees to drive an electric vehicle and save money at the same time. Yet before taking on a salary sacrifice scheme, do be mindful that your take-home pay is reduced, and this might affect other life items such as mortgage applications or maternity pay.
You can claim capital allowances for your business when you buy vehicles that are used in your business. This allows you to offset the cost of cars you purchase for your business from your profits before you pay tax.
The rate that you can claim for capital allowance on vehicles depends on the CO2 emissions of the car. For new cars brought between April 2015 and April 2018 you can deduct the full value of the car if CO2 emissions are 75g/km or less.
For cars bought after April 2018 the emissions level to qualify for a full deduction is 50g/km and this reduces to zero emissions from April 2021. You can see the full breakdown of all of the new bands of emissions which affect capital allowances here.
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