Ready to investigate the savings that can be made by choosing a low or zero-emissions plug-in electric vehicle? Preferential tax rates offered by HMRC, combined with the ever-rising cost of petrol and diesel, makes the use of battery and efficient plug-in hybrid vehicles more compelling than ever.
How is company car tax calculated?
HMRC sets a Benefit in Kind (BiK) rate for company cars that are used for personal use, based on the P11D value of the vehicle, its CO2 emissions and the employee’s tax band. The calculated tax is taken via PAYE. Employers are also required to pay National Insurance (2021/22 at 13.8%, going forwards at 15.05%) on the car’s BiK value.
The P11D value of a car comprises:
- List price
- Optional extras
- Delivery fees
The BiK rate will remain the same until at least 2025 to encourage employers and employees to select lower or zero-emission hybrid plug-in or fully electric cars. The BiK rate for zero-emission cars registered after April 2020 is 2% for the 2022-23 tax year and the next two tax years. The 2% BiK rate also applies to hybrid vehicles with CO2 emissions up to 50g/km and a full electric range of more than 130 miles, with rates increasing as range decreases. The BiK rate starts to rise incrementally up to 37% for vehicles with higher emissions.
The amount of tax payable is worked out like this:
P11D value x BiK rate = BiK value
BiK value x income tax rate = tax payable
Electric company vans
For company vans that are used for personal use, there is a van benefit charge of £3,600 for the 2022-23 tax year. Zero emission vans previously received a reduction on the van benefit charge which no longer exists, but the cash equivalent of the van benefit charge was reduced to £0.
Other tax benefits for EV
- Congestion charge exemptions – electric vehicles are exempt from congestion charges and zero emission zones, making trips into cities more economical.
- Capital allowances – cars with 0g/km CO2 emissions are eligible for 100% first-year capital allowances, so the full cost can be deducted from pre-tax profits. This could amount to £7,600 tax relief on a £40,000 car in the first year, or £10,000 from April 2023 when the corporation tax rate increases. This only applies to new cars.
- Charging points – employers can be exempt from being taxed as a BiK when providing EV charging points as long as the electricity is provided via a dedicated charging point at the workplace and charging is available to all employees at a particular location.
- Road tax (Vehicle Excise Duty) – based on emissions, VED is considerably less or completely exempt for electric and hybrid vehicles.
With around half of all new cars being bought by companies, there is a significant incentive to ‘go electric’ rather than continue with petrol or diesel models. The tax framework offers big savings to companies and employees but there are nuances to navigate to make the most of your decision, speak to the friendly experts at CRM Oxford for more information and guidance on 01865 379272.