How does benefit-in-kind affect electric cars?

How does benefit-in-kind affect electric cars?

Posted by

Charlie Strand

April 2024

If you have a company car that is available for private use, including commuting, then it becomes liable for company car tax as a so-called ‘benefit-in-kind’.

How much you pay for this benefit is based on the car’s carbon dioxide emissions, so that drivers of the lowest polluting cars pay least tax.

With more than one million electric cars on the road, the taxman wants them to start paying their way, but the good news is that it will cost drivers a fraction of what they would pay if they stayed in a diesel or petrol equivalent.

Drivers pay company car tax on a percentage of the taxable value of their car according to its emissions band. These tax bands range from 2% for zero-emission cars to 37% for a car emitting 170g/km or above (see company car tax table below).

These bands are frozen until April 2025 to give certainty to those thinking of switching to an EV. While rates for EVs will rise in the longer term, the increase will only be by 1% annually, reaching 5% by 2028, so electric car drivers can be guaranteed to save thousands of pounds in tax compared to opting for a fossil fuel car.

For example, a petrol-powered Audi A3* emitting 132g/km falls into the 31% tax band based on its emissions. A driver pays tax at their standard rate on 31% of the car’s taxable value of £35,570, which equates to £11,027 for the Audi. As a result, a 20% taxpayer incurs a £2,205 annual tax bill (double for the higher-rate taxpayer).

Although this is just over £180 a month for a shiny new Audi, it’s a costly choice compared to an EV.

A Tesla Model 3** costing £42,935 would have a taxable value based on 2% of its price, which comes to £859. Therefore, a 20% taxpayer would pay just £172 annually, £2,033 less each year than the petrol-powered Audi.

Over a four-year replacement cycle, the tax savings for the EV driver total thousands of pounds, which is plenty of incentive to consider switching.

 

Do you pay company car tax on a hybrid?

The government has developed special rules for hybrid vehicles, reflecting their use of both electric and fossil fuel power.

If a company car has CO2 emissions between 1 and 50g/km, its tax band is based on both CO2 emissions and the distance it can cover on electric power alone.

Therefore, if a car can cover more than 130 miles with zero emissions, the tax band is the same as an electric vehicle at 2%; from 70-129 miles, the tax band is 5%. Even the best plug-in hybrids typically fall into the next band down, for vehicles with a 40-69 miles EV range, where the taxable value for the car is 8% of its price. Most cars will fall into the final two bands of 30-39 miles, or less than 30 miles, where the taxable value is 12% and 14% of the car’s price respectively.

For example, a BMW 330e saloon*** plug-in hybrid can achieve 37 miles on electric power alone, which puts it into the 12% band. Therefore, a driver would pay tax on 12%, or £5,632, of the BMW’s £46,930 taxable value, which means a 20% taxpayer would be charged £1,126 annually.

That’s a lot more than an electric car driver will pay, but still a substantial saving on a purely fossil fuel car if you want to try EV motoring while having the reassurance of a petrol or diesel engine.

 

How can I calculate my company car tax bill?

It is always worth speaking to your fleet manager, fleet management company or leasing provider when considering your next company car.

Their expert advice can ensure you have all the information you need to make the right decision, including detailed calculations on your tax liability.

You can also do your own calculations using the handy tax calculator at: www.fleetalliance.co.uk/company-car-tax-calculator/

 

Company car taxes until 2025

These rates will remain frozen until the 2024 to 2025 tax year.

A 4% surcharge applies to diesel vehicles that do not meet the RDE2 emissions standard. This surcharge is capped, so the tax band will not exceed 37%.

 

* Model used: Audi A3 Saloon 35 TFSI Black Edition 150PS S Tronic, 132g/km, 31% BIK, £35,570 ** Model used: Tesla Model 3 Saloon RWD 4dr Auto, 0g/km, £42,935 *** Model used: BMW 3-Series Saloon 330e Sport 4dr Step Auto, 30g/km, £46,930


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