Company car tax on electric cars explained

July 13, 2022 by

Wondering about company car tax implications for EVs? Wonder no more…

Company cars may not be as common a perk as they once were, but over a million people still get this benefit.

But while the numbers may change, one thing has remained a constant with company cars, and that’s the fact that they’re taxed.

Electric company cars, however, are taxed far more favourably than their petrol and diesel counterparts; read on to find out all you need to know.

What is company car tax and how does it work?

Company car tax is officially known as Benefit-in-Kind (BiK) tax, as company cars are essentially non-cash benefits.

BiK rates are expressed as a percentage of a car’s value, with this becoming taxable income.

How high a BiK percentage a car attracts depends on how much carbon dioxide (CO2) it emits.

Electric cars don’t emit any CO2 on the road, and so they are therefore subject to far less tax than petrol and diesel cars.

The lowest BiK for Financial Years (FY) 2022/23, 2023/24, and 2024/25 is 2%. This rate applies to cars that emit no carbon dioxide (IE 0 g/km, or grams per kilometre), plus any plug-in hybrid cars (PHEVs) that are able to travel over 150 miles under battery power, while also emitting fewer than 50g/km of CO2 – although no PHEVs can currently do this.

At the other end of the scale, cars that emit over 170g/km of CO2 are subject to a BiK rate of 37% of their value.

How much is tax on electric company cars?

This depends on how much the car costs, how much you earn, plus a few other variables.

A company car’s price is determined by its P11D value. A car’s P11D value is effectively synonymous with its list price, including VAT, options and delivery charges.

The more a car costs, the more tax you will pay, relative to the BiK percentage it attracts.

Let’s say you are a 20% rate taxpayer, and choose a Fiat 500e Passion 42kW as your company car.

This car has a P11D value of £27,280, and as it emits no CO2 on the road it is subject to a BiK rate of just 2%.

With 2% of £27,280 being £545.60, that’s the amount of taxable benefit you receive – but you don’t pay all that, only a percentage based on your tax bracket. So if you’re a 20%-rate taxpayer, you pay 20% of £545.60, or £109.12 a year.

For the sake of argument, say you had a car of the same value, but it emitted 170g/km of CO2. It would then attract a BiK rate of 37%, leaving you with a tax bill of £2,018.72. That’s quite the difference, and demonstrates just how wise a tax choice an electric car represents.

What about tax on electric company vans?

This depends on how the van is used, and whether it is an electric van.

If a petrol or diesel van is only used for work purposes (including commuting), then you don’t pay any tax on it.

If you make “insignificant” personal use of a petrol or diesel van – EG an occasional run to the tip, or dropping a child off at school on your way to work – then there is also no tax to pay.

If, however, you make “significant” personal use of the van – EG treat it as you would a personal car, using it to visit friends every weekend – then a petrol or diesel van is subject to a flat taxable amount of £3,600 for the 2022/23 Financial Year; if you are a 20% tax-rate payer, you will pay 20% of this, so £720 a year.

If, however, the van is electric, you do not pay this at all, even if you use the van as a personal vehicle in your free time.

Electric vans like the Citroen e-Berlingo bring tax advantages, too

What other incentives are there for businesses to go electric?

Businesses are being encouraged to get staff into electric cars with a number of other methods.

These include:

Workplace Charging Scheme

This provides 75% of the purchase and installation costs of EV chargepoints at a workplace, up to a maximum of of £350 per socket, and 40 sockets per site, per applicant – IE one company can get 40 grants for 40 sockets at one location, or 40 grants for 40 sockets spread over 40 locations.

Grants for workplace chargers can help companies save money on EV investment

Plug-in vehicle grants

Companies can also get Government grants for electric vans, trucks and taxis. These range from Grants vary in size depending on the type of vehicle, with small vans eligible for a grant of up to £2,500, and large trucks getting up to £25,000 contributed by the Government.

Other incentives

Electric company vehicles are also subject to favourable capital claim allowances, meaning firms can deduct more of their value from company profits for the purposes of tax calculations.

Salary sacrifice schemes are also more attractive for electric cars, while other benefits include an appealing advisory fuel rate for EV charging that your business pays for, plus exemption from emission and congestion charges, should your vehicles attract these as part of the work they are used for.

Get your next electric car with carwow

If you’re in the market for an electric car, there’s no better place to buy one than carwow. Simply choose which model you’d like, or use our handy configurator to narrow down your options based on your wants and needs, and our network of trusted dealers will offer you their best prices, leaving you to simply choose the most appealing one.