In the UK, if you drive a company car you pay a tax on the value of the car, depending on the car type, and also your tax band. This is called ‘BIK’ – Benefit in Kind.
Previously if you drove a pure electric car (EV – battery electric) you would have paid 16%. But from 6 April 2020 the tax rate is 0%! Yes…. that’s a free car! For the first year anyway. Compare this to the worst gas guzzlers where you can pay up to 37%.
And it’s not just brand new vehicles either. Pure EVs registered before April 6 2020 are also taxed at 0% (as long as they have a range of 130miles or over). You can run EVs which have less range than this as company cars, but you will pay a few more % in tax.
The pure electric rate will increase, but to only 1% in 2021/22 and then 2% in 2022/23.
For company car drivers it’s a no-brainer! Never mind the fact that EVs are faster, quieter, smoother and have zero tailpipe emissions.
Roughly 50% of new cars in the UK are fleet owned/run – so this is going to hugely drive demand, even with the impact of Covid-19.
And companies are set to make savings as well on national insurance, maintenance and other tax clawbacks. Deloitte provides an example: “a company that operates a large fleet (600 medium hatchbacks and 300 premium SUVs as an example) could experience annual savings of £1.9M with total savings of £7.7M over four years if they were to move their fleet profile to 100 per cent electric.”
But it’s not all good news. Some companies are tied into deals with manufacturers such as Ford. Their Mustang Mach-e is now available but this is probably not the typical company car. Otherwise it’s a hybrid (i.e. a slightly more economical petrol car…) or a PHEV, which also has several disadvantages.
How to work out the company car tax
Previously you would have paid: (example: 6th April 19 – 5th April 20)
1: Find the list price
Nissan LEAF n-Connecta 40kWh – list value of £27,635 (on your P11D)
2: Find the BIK rate
It’s an EV – so 0g/km of CO2 which means 16% BiK rate
3: Calculate the BIK value
£27,635 x 16% = £4,423.20
4: Multiply the BIK value by your own tax rate
> If you pay 20% tax; you’ll pay £4,423.20 x 20% = £884.64 pa
> If you pay 40% tax; you’ll pay £4,423.20 x 40% = £1,797.68 pa
> If you pay 45% tax; you’ll pay £4,423.20 x 45% = £1,990.44 pa
Currently you pay: (example from 6th April 2020)
In 2020-21, BiK value will be £27,635 x 0% = £0. Nothing to pay regardless of your tax rate.
Benefits for business owners
New zero-emission cars qualify for a 100% first-year allowance, meaning business owners can write off the whole cost of the car against their profits in year one — which reduces their corporation tax bill.
Charging the car at the office is also not a taxable benefit.