Benefit in kind tax is levied on employees who receive a company car from their workplace in addition to their salary — in fact, some call it the company car tax. This means that if you have a company car that you take home at the end of the working day and are allowed to use privately, you’ll need to pay tax on it.
This benefit in kind (often called BIK) tax is calculated in a number of different ways, depending on the vehicle. It’s based on the value of the vehicle as well as the emissions. The most important thing to know, though, is that electric vehicles are currently exempt from this tax. This means that you, as an employee, can use a company car privately without paying any extra tax, as long as it’s electric.
From 6 April 2020 until 5 April 2021, full battery electric vehicles (BEVs) will pay no benefit-in-kind tax. This compares to a tax of 37% at the opposite end of the emissions scale.
What electric vehicles does this apply to?
This 0% rate applies to company car drivers in pure electric vehicles registered prior to April 6, 2020. Additionally, the 0% rate will also apply to company cars registered after April 6, 2020, with emissions from 1-50g/km and which have an electric-only range of 130 miles or more. Both will increase to 1% in 2021/22 and 2% in 2022/23.
Popular electric company cars include the Tesla Model S and Model 3, Kia e-Niro, and Volkswagen ID.3. All of these are eligible for the current 0% tax rate.
Move quickly to get 0%
With the tax rate set to go up for electric vehicles after April 2021, now is the time to benefit from that 0% rate. However, if you do miss out on this tax year, it only rises to 1% for 2021/22.
If you need advice on the best car to go for and your options for charging, feel free to contact us.
Does this make the company car a perk again?
For many employees, the company car became an expensive perk that no one really wanted. This is especially true with many diesel vehicles which are subject to a 4% surcharge on top of their standard rate.
Paying extra tax put off employees and many refused a company car, instead preferring to go for a salary sacrifice scheme instead. Now that employees can use their electric company car for private mileage without paying extra tax, the company car suddenly becomes a perk once again.
How much tax will I save on an electric company car?
If you compare a Tesla Model S, which is a £90,000 fully electric car, with a Mercedes S 450 L AMG Line — a £90,000 internal combustion engine car — you can really see the difference.
For the 2020/21 tax year, you’d pay £0 on the Tesla but a whopping £1,100 per month on the Mercedes. For 2021/22 the Tesla will get the 1% tax rate making it £30 per month while the Mercedes stays at £1,100.
The Mercedes is in the highest bracket for company car tax at 37% but there are even savings to be found against other ICE vehicles with lower emissions and prices. With electric vehicles at 0% for now or 1% after April 2021, there are some huge savings to be made on your company car.
Even for mid-range vehicles, such as a BMW 3 Series with a value of £30,000 and emissions of 110g/km of CO2, you’d find yourself saving a huge amount if you went for a £30,000 electric car instead. The BMW 3 Series has a BIK rate of 25% based on its CO2 emissions. That means the rateable figure is £7,500. As a 40% taxpayer, this would cost you £250 per month for the pleasure of having it as your company car.
If you’d like guidance on the electric company car that might be right for you, give us a call.