Tax advantages of electric cars
If you are an employer deciding which vehicles to add to your company car fleet – it’s important you also weigh up the rates of company car tax (or BiK tax), as this will be deducted from your employee via PAYE. It is relatively easy to estimate company car tax rates; you can do this by simply checking a car model’s Co2 emissions standard. Typically, company car tax on electric cars is the most tax-efficient because they are zero emissions and fall under the lowest BiK tax rate bracket.
Company car tax on electric cars
Company car tax is paid on all company cars. Also known as `Benefits-in-Kind` tax, it is paid by an employee as part of their personal tax responsibilities. BiK tax for company cars is based on the vehicle’s CO2 emissions standard and fuel type. For example:
- High CO2 emissions – petrol/diesel cars
- Low CO2 emissions – such as hybrid cars
- Zero CO2 emissions – pure electric cars
BiK tax rates for company cars are also calculated by using the driver’s personal tax rate of 20%, 40%, or 45%.
Along with the aforementioned tax, there is also a Class 1A National Insurance liability payable by the company at the rate of 13.8% on the value of the benefit. If you’re unsure of how this works, it might be beneficial for you to seek further advice from a chartered accountant.
Is there no company car tax on electric cars?
Electric company cars sped into popularity after a zero percent Benefits-in-Kind (BiK) tax rate was launched by the government in 2020. It was a tax incentive designed to urge businesses to invest in zero emissions company cars. In the years that followed, the percentage of BiK tax on electric cars rose slightly after changes in the 2020 government budget:
- 1% for 2021/2022
- 2% for 2022/2023
- 2% for 2023/2024
- 2% for 2024/2025
All other vehicles (such as diesel and petrol cars) are taxed at a much higher rate – some are 37%.
How is Benefits-in-Kind tax accounted for?
To account for Benefits-in-Kind tax (for company cars and other employee benefits), the employer must fill out a P11D form and submit it to HMRC. For further guidance, please get in touch with our expert team today.
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