Company Car Tax On Electric Cars

7 minutes Published: 08/04/2020

What's Covered

If there’s ever been a time for businesses to jump on the electric car bandwagon, now is that time.

 

The HMRC have been busy modifying the current company car tax rates (Benefit in Kind (BiK) rates). 

 

The changes coming to fruition at the start of the new tax year (April 6th 2020) have highlighted the significant tax savings for businesses who opt for electric or Plug-in hybrid  company cars rather than equivalent petrol or diesel vehicles.

 

The government has taken radical action in their pursuit of meeting the ambitious climate change targets that have been set. This has played into the hands of zero and low CO2 emission vehicles. To put things in perspective, electric company cars registered from the start of next year will pay absolutely no BiK tax compared to the current BiK tax rate of 16%. 

 

Another alteration to company car tax scheduled for the start of the new tax year involves changing the process used to calculate the CO2 figures. CO2 emissions are integral for working out tax rates and come the 6th April 2020, they will be calculated using the Worldwide Harmonised Light Vehicle Test procedure (WLTP) instead of the out-dated (New European Drive Cycle) NEDC.

 

If you’re looking for a more detailed account on what Benefit in Kind tax actually is, or how the company car tax is calculated, take a look at our comprehensive guides for a thorough breakdown of the process.

 

This explainer guide highlights the benefits of electric vehicles as company cars, how BiK rates are calculated and explains how changes to company car tax will compare to the current rates. 

 

For an alternative option, weigh up the pros and cons of company cars against a company car allowance.

 

Switch from NEDC to WLTP CO2 figures 

As mentioned previously, the current CO2 emissions have been calculated using an official NDEC.

However, in 2018, the government announced that from 6th April 2020 the CO2 figures used to calculate Bik rates will switch from the outdated NEDC test to the WLTP.

The WLTP procedure was introduced in EU countries in 2017 and has been successful in measuring pollutant emissions and fuel efficiency more accurately.

As a result of the switch, the government has produced two Bik tax tables - one for drivers with cars registered before the 6th April 2020 and one for those who are planning to register a car after this date. 

Bik tax bands for 2020- 23 (Car registered before April 6 2020) NDEC

Bik electric car tax NDEC

*add 4% up to a maximum of 37% for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard. Diesel plug-in hybrids are exempt from the 4% surcharge as they are classed as alternative fuel vehicles.

Bik company car tax bands for 2020- 23 (Car registered from April 6 2020) WLTP

Bik electric car tax WLTP

*add 4% up to a maximum of 37% for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard. Diesel plug-in hybrids are exempt from the 4% surcharge as they are classed as alternative fuel vehicles.

As you can see from the two tables, there are huge savings benefits available to those who choose a zero emissions electric car or a lower co2 emissions vehicle like a plug-in hybrid.

We’ll go through the forthcoming Bik company car tax bands in a little more detail, but it’s really handy to have these tables as a point of reference. 

Benefit in Kind (BiK) rates for Electric Vehicles (EVs)

The current BiK tax rate for electric vehicles is 16%. This is currently the lowest tax band and covers company cars that emit between 0-50g/km of CO2. 

As of next year, zero CO2 emission vehicles will have their own tax band.

Referencing both the tables above, you may have noticed that zero emission vehicles will be taxed a rate of 0% for 2020/21, followed by a 1% rate in 2021/22 and then 2% in 2022/23. 

These tax rates apply to both cars that have been registered before, and after the 6th April 2020.

BiK rate for Plug-in hybrid Vehicles (PHEVs)

The total amount of  company car tax that a plug-in hybrid (PHEV) has to pay depends on how far the vehicle can be driven with zero emissions.

This is where tax bands start to vary depending on the registration date, so pay close attention.

The most significant finding identifies that PHEVs registered before the 6th April 2020 with an electric range of >130 will have to pay 2% BiK tax for 2020-21 and the subsequent two years.

In contrast, a PHEV registered after the 6th April with the same electric range requires no tax payment for 2020-21, followed by 1% in 2021-22 and 2% in 2022-23.

It’s imperative to understand that PHEVs are taxed on their ability to drive on electric-power alone as opposed to their CO2 emissions. This is evident when you look at the difference in BiK rates for cars that have a range of <30 miles to those with >130 miles.  

As we’ve already alluded to, cars registered before 6th April 2020 with a range of >130 miles will have to pay 2% BiK tax rate in 2020-21. 

You’ve then got another PHEV that emits the same CO2 as the >130 mile range car. However, this car only has an electric range of 28 miles, categorizing it in the <30 miles electric range bracket. For the 2020-21 tax year, this specific car will have to pay a 12% BiK rate even though it emits the same CO2 as the longer ranging PHEV. 

Something to look out for if you’ve got your eye on a Plug-in hybrid. 

 

How Benefit in Kind (BiK) tax is calculated 

To manually calculate the BiK tax on your EV, you’ll need a calculator and a few important figures:

Our post on company car tax provides a deeper insight into all these figures.

The holy grail of calculating company car tax  is embedded in the following formula:

P11D value x CO2 emissions tax band percentage x Personal rate = Annual company car tax.

We’re going to show you an example of the annual company car tax for the same electric vehicle from 2019-2023.

Andy’s company have chosen to have a look at the Nissan Leaf 40kWh EV with a range of up to 168 miles.

Andy works for a Scottish company and earns £30,000 PA. He falls under the Intermediate Personal Income Tax bracket of 21%

2019/20

P11D value - £30,135

CO2 Emissions - 0 g/km

CO2 Emission tax band - 16%

In 2019/20 Andy would be paying:

(£30,135 x 16%) = £4,821.60 x 21% = £1,012.54 per year or £84.38 per month

2020/21   

P11D value - £30,135

CO2 Emissions - 0 g/km

CO2 Emission tax band - 0%

In 2020/21 Andy would be paying:

(£30,135 x 0%) = £0 x 21% = £0 per year or £0 per month  

2021/22

P11D value - £30,135

CO2 Emissions - 0 g/km

CO2 Emission tax band - 1%

                                                       

In 2021/22 Andy would be paying:

(£30,135 x 1%) = £301.35 x 21% = £63.28 per year or £5.27 per month

2022/23

P11D value - £30,135

CO2 Emissions - 0 g/km

CO2 Emission tax band - 2%

                                                       

In 2022/23 Andy would be paying:

(£30,135 x 2%) = £602.70 x 21% = £126.57 per year or £10.55 per month

It’s quantifiably evident that the impending BiK tax rates are going to have a huge significance for employees driving electric company cars.

If you don’t fancy going back to the classroom, take a look at a tax calculator to see how much you could be saving by going all-electric. 

Vehicle Excise Duty (VED) 

More casually referred to as road tax, Vehicle Excise Duty (VED) is calculated based on your car’s CO2 emissions, list price (P11D value) and the year it was registered.

Since the 31st March 2017, most electric cars have been exempt from paying road tax. The government initiative has aimed to support drivers who promote clean and sustainable driving.

Unfortunately, if your electric company car falls under the ‘Premium Rate’ category (worth over £40,000), you’re going to have to fork out for it. Road tax will have to be paid for the first 5 years the car’s on the road in addition to any other VED charges.

In terms of PHEVs, you’ll pay in the region of £10-100 for your first year depending on the vehicle’s CO2 emissions and then £135 for the subsequent years.

Top tip -  All cars that emit less than 75g/km CO2 will pay significantly less road tax in the first year which will definitely go down well with the boss.

VED tax rates for cars registered after 31st March 2017

VED tax rates

Capital Allowances

You can claim capital allowances for your business through cars you have bought for business use. This enables you to deduct part of the cost you paid for the car from your profits before you pay tax.

The desired criteria for a car is:

  • It must be suitable for private use.
  • Most people use it privately.
  • It must not be built for transporting goods.

The rate that you can claim for capital allowance depends on when you bought the vehicle and of course, the CO2 emissions of the car.

Cars newly bought between April 2015 and April 2018 are eligible to deduct the full value of the car if CO2 emissions are 75g/km or less.

For cars bought after the 31st April 2018, you’re only eligible for a full deduction if the car emits 50g/km or less CO2. 

Contact us

If you require further information and advice about Company Electric Car Tax, please don’t hesitate to contact us at LeaseFetcher