• Gary Smith
• December 30, 2022

BIK on electric cars – should my company buy one?

With forecourt fuel prices still high: one of several good reasons why so many motorists are thinking seriously about switching to electric for their next company car. But is it beneficial to switch to electric for tax benefits?

Lots of people ask us about buying cars through their companies. More often than not the tax paid on the benefits in kind for personal usage means it is not worth it. Electric vehicles attract lower BIK rates so clients are now asking if they should buy electric cars through their business. Taking into account the changes announced in the Government’s Autumn Statement, here’s the full lowdown on electric company car tax for 2023…

Tax on company cars: a quick recap 

A company car for combined personal and business use is classed as a taxable perk. Tax on a company car is payable by both the employer and employee. Here’s how this works: 

Employer-payable company car tax 

Unless the vehicle is solely for business use, Class 1A National Insurance Contributions (NICs) must be paid by the employer for each company car. The amount payable is determined by the following factors: 

• The car’s Benefit-in-Kind (BiK) rate based on its CO2 emissions rating (the lower the emissions, the lower the charge) and engine type. 
• The car’s P11D value (this is the car’s list price plus VAT, delivery charges and the cost of any options valued over £100). 
• The annual National Insurance Class 1A rate for expenses and benefits (for the year 2022 to 2023, this rate is 14.53%) 

The basic calculation is as follows: NIC amount payable = P11D value x BiK rate based on CO2 x 14.53%.   

Employee-payable company car tax 

The amount payable by employees is determined by the following factors: 

• The car’s BiK rate based on its CO2 emissions rating and engine type. 
• The car’s P11D rating. 
• The employee’s personal tax bracket. 

Employee-payable company car tax is calculated as follows: P11D value x BiK rate based on CO2 x the employee’s personal tax bracket (e.g. 20%, 40% or 45%). This tax payment is deducted at source under PAYE. 

BiK rates

For cars registered from 6 April 2020, the current and upcoming rates are as follows: 

CO2 (g/km)	Electric range (miles)	2021-22 (%)	2022-23 (%)	2023-24 (%)	2024-25 (%)
0	N/A	1	2	2	2
1-50	>130	1	2	2	2
1-50	70-129	4	5	5	5
1-50	40-69	7	8	8	8
1-50	30-39	11	12	12	12
1-50	<30	13	14	14	14
51-54		14	15	15	15
55-59		15	16	16	16
60-64		16	17	17	17
65-69		17	18	18	18
70-74		18	19	19	19
75-79		19	20	20	20
80-84		20	21	21	21
85-89		21	22	22	22
90-94		22	23	23	23
95-99		23	24	24	24
100-104		24	25	25	25
105-109		25	26	26	26
110-114		26	27	27	27
115-119		27	28	28	28
120-124		28	29	29	29
125-129		29	30	30	30
130-134		30	31	31	31
135-139		31	32	32	32
140-144		32	33	33	33
145-149		33	34	34	34
150-154		34	35	35	35
155-159		35	36	36	36
160-164		36	37	37	37
165-169		37	37	37	37
170+		37	37	37	37

EVs and company car tax: what’s happening? 

For the 2020/21 financial year, BiK on fully electric cars was cut to zero. It went up to 1% for the following year, and currently stands at just 2% of the vehicle’s P11D value. The plan is for it to remain at its current 2% rate until 2025. 

In November of this year, the government announced long-term plans to raise the EV BiK to 5% after 2025. However, this will happen incrementally: going up to 3% for 2025/26, 4% for 2026/27 and 5% for 2027/28. 

The position on hybrid vehicles 

The amount of tax payable on plug-in hybrids depends on the distance they can be driven with zero emissions. You can see from the table above that for a hybrid capable of doing more than 130 miles on a charge, the BiK is 2%. This goes up to 14% for a vehicle capable of doing less than 30 miles on a charge. 

The direction of travel

The government clearly wants to encourage EV and hybrid takeup. So while EV BiKs are creeping up over the next few years, they still look set to represent a huge tax saving on traditional petrol and diesel models. 

As an illustration of this, electric lease car specialists, Drive Electric compare an all-electric VW Golf and a 2.0 TDI model, both of which have similar list prices. If a 40% income tax payer were to opt for the former in 2022/23, the annual tax saving would be more than £3,000. 

Is it worth it? 

For a lot of people, undoubtedly. Most motorists weigh up factors such as personal fuel consumption, off-street parking and local charge point provision when making the decision to go electric, but it’s definitely worth factoring in the company car tax angle, too. And finally, if you are opting for a hybrid, remember that the electric mileage range of the model will have a significant impact on the amount of tax payable – so make sure you check the spec carefully before you decide. 

Need advice on benefits in kind for employees or on self-assessment in London? Speak to our London accountants or Manchester accountants today.