If you are thinking of choosing a pure electric or plug-in hybrid company car, there are advantages in Benefit-in-Kind tax savings to be made for both the employee, and employer.
In this blog, we’ll look at how Benefit-in-Kind tax is worked out for EVs and the savings to be made.
Firstly, what is Benefit-in-Kind tax?
Benefit-in-Kind (BIK) is a tax payable by employees when they receive benefits or perks from their employer, on top of their salary. A company car they can drive for private and work purposes is liable to BIK.
Once the tax has been worked out, the amount owed is usually taken in monthly instalments from wages through Pay as You Earn (PAYE).
How do you work out BIK for EVs?
Every car has a BIK percentage banding based on its CO2 emissions. Pure EVs, with no CO2 emissions sit in the 0g/km banding, which until 2025 has a BIK percentage of 2%.
This means that company car tax is calculated based on 2% of the vehicle’s P11D value (which is the list price, including extras and VAT, but without the first-year registration fee and vehicle tax).
So, if your electric car’s P11D price is £40,000, then the amount you calculate tax from is £800 (which is worked out by £40,000 ÷ 100 x 2%).
Then it’s a case of applying individual rates of tax. It tends to vary depending on each employee’s circumstances, but in general a lower rate 20% taxpayer would therefore pay £160 a year (£800 ÷ 100 x 20%) in BIK tax for their electric car, while a higher rate 40% would pay twice that amount: £320.
Although it doesn’t exactly work out like that because a higher rate payer will still pay some of it at the lower rate, but how much depends on other things within their own salary. It’s tax after all – it’s not supposed to be that simple…
Not surprisingly, at those rates – basically £13 or £26 a month to end up with a £40,000 electric car - employees would find this a very attractive proposition. Especially when you consider an equivalently priced petrol car, with emissions of perhaps 130g/km, sits in the 31% tax banding, meaning the same drivers would pay £2,480 or £4,960 a year.
How BIK works for Plug-in Hybrids
The calculation is a little more complex for Plug-in Hybrids (PHEVs), but they are generally still more tax-efficient than petrol or diesel cars. The amount of tax a driver pays depends on how far the PHEV can go on electric-only power, with the longer the range, the lower the tax.
Using the £40,000 P11D value again though, even a shortish range PHEV that goes less than 30 miles before running out of electric attracts a percentage rate of 14%, which means tax calculated on a value of £5,600 (£40,000 ÷ 100 x 14%).
At £1,120 for the lower rate taxpayer and £2,240 for the higher one, it’s still a considerable saving over a petrol or diesel-only car.
Some other factors in how much drivers pay
Although these calculations are relatively straightforward, there are some other factors that can be involved in how much tax a company car driver pays. The value of the car is reduced if they have it part-time, or they pay something towards its cost, although how much depends on the contribution or the length of time they have the car.
Drivers can work it out in more detail on the HMRC calculator here: http://cccfcalculator.hmrc.gov.uk/CCF0.aspx
Do you pay BIK tax on home charge points?
No. Company car drivers are not liable for benefit-in-kind tax on the cost of the unit or its installation either, even if the employer pays for it.
Employer NICs on EVs
Employers must pay National Insurance Contributions (NICs) on company cars, based on the same CO2 sliding scale as the employee. The difference is that the final amount is calculated against a rate of 15.05% (from April 2022) rather than lower and higher rate income tax of 20% and 40%.
Again though, this means that a pure electric company car, rated in the 2% category because of its 0g/km CO2 output, attracts low NICs - just £120.40 a year for our £40,000 example:
£40,000 ÷ 100 x 2% = £800
£800 ÷ 100 x 15.05 = £120.40
By comparison, the equivalent 130g/km petrol car would cost an employer annual NICs of £1,866,20.
Other useful tax advantages of EVs
Then there are the other tax advantages. No Road Fund Licence for a start. Plus, if you buy your electric company cars, you can claim the full cost of them against profits (as opposed to only 18% for a petrol or diesel vehicle) in the first year, saving Corporation Tax.
You’ll also be able to claim back VAT against leasing payments and maintenance costs too.
How much Benefit-in-Kind tax is there on an electric van?
Unlike a petrol or diesel van, which incurs BIK tax if there is some private use, pure electric vans have no tax on them whatsoever under the Van Benefit Charge regulations, no matter how they are used by the driver.
Do you have to pay BIK tax on charging?
For company owned vehicles, in general, you won’t pay BIK on home, public or workplace charging, as long as you follow some guidelines. While the AER (advisory electricity rate) is 5p per mile and can be reimbursed tax-free, potentially BIK could be charged on any reimbursement cost above this (on the 1p if you reimburse at 6p, for example).
However, if you can show what you are paying is the actual cost of the electricity, then charging is BIK tax-free for any miles related to business use.
In this case then, to evidence the actual cost of electricity, you need to know what each of your employees’ electricity tariffs are. This might sound a big job, but it doesn’t need to be: Mina monitors and automatically updates a drivers tariff and energy supplier within our platform. This tariff data, combined with consumption data (kWh) obtained from the charge point and/or vehicle API, enables us to provide an invoice and breakdown of every charge session and the actual cost.
If personal use of the vehicle is allowed and personal charging costs are charged back to the employee, either via payroll or collected directly (e.g the employee pays back), no BIK tax is payable. Mina offers personal and business mileage solutions to automate this process.
Also, you won’t pay BIK if the vehicle is owned by the employer and used for business-only purposes.
Finally, any charging in the workplace (for example, in a company car park) is BIK-tax free, even if for personal use.
Highlighting the benefits
As you can see, electric company cars and vans have an extremely advantageous tax position, and will do for some years to come. Everybody, except the taxman it seems, benefits!
To discuss more about the Mina Solution and how it can benefit your business, get in touch.