The rules are set to change if you run an electric vehicle as a company car. Electric vehicles are usually exempt from vehicle excise duty, (car tax, however, you do need to pay Benefit-in-Kind (BiK) tax if you have one as a company car.
The measure was introduced in 2020 so that businesses and workers would be geared-towards choosing a low-emission vehicle.
Company car tax is more complicated than vehicle excise duty as the value not only depends on the vehicle’s emissions but also its list price and how much the employee using the vehicle, earns.
“What are BiKs, you ask?” Otherwise known as ‘benefit in kind’, it is the term used for employees using their company’s work vehicle for personal use. This is considered a perk and considered taxable.
Actual company car tax in the IK is broken down into two parts, what the company has to pay and what the employee using the car has to contribute. This applies for both electric and none-electric cars. Deciding factors such as the car’s D11D value – (the value of the car including VAT) options and the delivery fee, as well as its CO2 emissions. The company fills out a form each year and pays the fee to the Treasury.
How much the employee has to pay is slightly more complicated. The BiK tax rate is determined by the BiK tax band the vehicle sits in, it’s D11D value and also the individual’s income tax bracket.
Using the formula – (D11D value) x (BiK band) x (income tax bracket) = BiK tax.
The next step is to work out how much tax you’ll pay on the BiK value by multiplying it by your income tax bracket. If, for example you’re a 20% taxpayer, you’ll pay 20% of the BiK value, which equates to £99.64 a year.
Using the above formula, the key to the overall BiK tax is the BiK band of BiK rate, expressed as a Percentage. This percentage is determined by the Government. In short, the more polluting the vehicle, the higher the BiK rate.
The Government has announced, however, that it will cut BiK rates for zero-emission vehicles and will apply retroactively to electric company cars already registered before the 6th April 2020 introduction date for the new rules.
The rate for plug-in hybrid cars is basically down to how far the hybrid in question can be driven with zero emissions.
Prior to the April 6th deadline, company car will be calculated on Co2 figures from the latest WLTP fuel-economy and emissions testing procedure.
The method of calculating the BiK value is the same for PHEVs and hybrids as it is for normal and electric cars. It is, however, important to note that for plug-in hybrid and electric cars, the list price of the vehicle (used in the D11D value), must always include the cost of the battery. This applies if the battery is leased by the employer on behalf of the employee, this has to be listed as a taxable benefit at a cost to the employer.
When it comes to company car tax on vans, on the other hand, if the company provides you with either a conventional or electric van for private use, it doesn’t face the company car tax. In fact, vans are subject to a van-benefit charge. It is currently set at a flat rate of £3,430 for the 2019/20 financial year for normal vans. Electric vans are liable for a partial exemption. The current rate is set so companies only have to pay 60% of the liability.