If you have privately bought electric car, then it would be exempted from Vehicle Excise Duty but in case your employer has provided you a car for private use then you would have to pay Benefit-in-Kind (BIK) tax on it.
Company car tax was introduced in 2002 by the Treasury to motivate employees and employers to choose low-CO2 emission vehicles (mainly electric cars and hybrids).
Company car tax consists of the following two parts:
- Tax that the company must contribute
- Tax that the employee who’s using the car must pay
Company Tax on electric vehicles:
When an employee receives an electric car or PHEV for private use form his company, it will be considered as a “perk” which is taxable under the law and is called as Benefit-in-Kind.
The company tax for PHEV or electric vehicle will be the same as it is for other vehicles.
Tax that the employer has to pay:
How much tax an employer will pay on the electric vehicle is calculated on the basis of factors like its CO2 emissions and “P11D value” of the car (it includes the value of the car, delivery fee, VAT and other options). The company has to fill a P11D form every year and pay the due fee to the Treasury.
Tax that the employee has to pay:
The BiK tax rate for the employee is calculated using several factors; these include the P11D value of the electric car or PHEV, the income-tax bracket of the employee, and the BiK tax band on which the car sits in.
BiK band/rate for electrical vehicles:
Payable BiK tax is based on the BiK band on which the electric vehicle or PHEV falls. Higher carbon dioxide emission higher will be the BiK rate. As electric vehicles never produce CO2 emissions, therefore they fall on the lowest BiK band/rate which is 13% for the year 2018-2019. The electric cars will witness an increase in the BiK rate as it’s expected to be 16% for the year 2019-2020.
BiK tax for electrical vehicles:
To determine the amount of BiK tax that the employee has to pay, first, you have to calculate the BiK. The simple formula to calculate BiK is:
P11D value x BIK Band = BIK value
Next, the BiK value is multiplied with the employee’s income-tax bracket (20-45%) to find out the payable BiK tax on the company car.
To understand the calculations, take the example of Nissan Leaf n-Connecta 40kWh. P11D value of this electric vehicle is £31,335 and it falls under 13% BiK band (BiK band is decided by the government and is set as 13% for the financial year 2018-2019). BiK value for Nissan will be:
BiK = £31,335 x 13% = £4,074
Next, to calculate the amount of tax to be paid on this BiK, the BiK will be multiplied with the employee’s income tax bracket.
For 20% taxpayer it’ll be: £4,074 x 20% = £814.8
For 45% taxpayer, it’ll be: £4,074 x 45% = £1833
BiK rate for PHEVs and Hybrids:
Just like any other vehicle, PHEVs and hybrid cars also have to pay company-car tax. The BiK tax on these vehicles depends upon how much zero-emission mileage they provide and under which BiK band they fall.
Change in BiK rates:
To encourage employers and employees to prefer low-emission vehicles, the government announced in the autumn budget to sharply reduce the BiK rates for zero-emission vehicles by 2020.
BiK rates for EVs and PHEVs are expected to starkly go down from 16% (2019-2020) to just 2% in the financial year 2020-2021. This means that the Nissan Leaf for which you paid £814.8 BiK tax this year, it’ll drop down to £125 in 2020. However, there will be a 1% increase in the BiK rate for high CO2 emitting cars (75g/km or more).
Following is a brief table showing BiK rates for EVs and PHEVs for years 2018/19, 2019/20 and 2020/21.
|CO2 Emissions g/km||Zero Emission Mileage||Year 2018/19||Year 2019/20||Year 2020/21|
|1 – 50||More than 130||13%||16%||2%|
|1 – 50||70 – 129||13%||16%||5%|
|1 – 50||40 – 69||13%||16%||8%|
|1 – 50||30 – 39||13%||16%||12%|
|1 – 50||Less than 30||13%||16%||14%|
|51 – 54||N/A||16%||19%||15%|
|55 – 59||N/A||16%||19%||16%|
|60 – 64||N/A||16%||19%||17%|
|65 – 69||N/A||16%||19%||18%|
|70 – 74||N/A||16%||19%||19%|