Electric cars and company car tax – what you need to know
As budgeting for the 2020/21 financial year begins, the electric vehicle industry is set to be boosted by a surge in the number of electric company cars, as owners of emissions-free electric fleet models will pay no benefit-in-kind (BIK) tax for 2020/21 tax year.
In this blog we set out the highlights and what it means for companies and employees choosing to switch to electric:
How is company car tax calculated?
Company car tax is a tax on the “Benefit in Kind”(BiK) that an employee receives when they are provided with a car for their personal use. HM Treasury calculates how much benefit an employee receives and then applies what is called a BiK tax rate based on a number of factors, including the type of vehicle.
What tax applies to electric vehicles?
From 6 April 2020 until 5 April 2021, company car drivers and fleet operators choosing an electric car will pay zero tax on Benefit in Kind (BIK). This applies to zero emission, fully battery electric vehicles only.
This zero-rate compares to a whopping 37% at the opposite end of the emissions scale, making a shift to electric a no brainer for companies and their staff.
What about hybrid vehicles?
The zero rate on BIK also applies to hybrid vehicles with emissions from 1 – 50g/km and a pure electric range of over 130 miles.
The government is also set to introduce five new bands for plug-in hybrids and other electric vehicles which emit 1-50g of CO2/km, which will give real tax savings on electric vehicles that can drive furthest with zero harmful emissions.
Is this a one-off for the next tax year?
No. The government has also announced the tax rate for the next three years, helping businesses to plan ahead. The electric car tax on benefit in kind rate will increase to 1% in 2021 / 2022 and 2% in 2022 / 2023.
What does this mean for the EV industry?
The EV industry will be boosted by the new tax rates, which further serve to incentivise the purchase of electric vehicles. Researchers from the International Council for Clean Transportation (ICCT) have released a report calculating that tax breaks are a key way to drive the rollout of electric vehicles and tackle climate change and air pollution.
The new tax rules, together with the increasing popularity of EV cars, could see a swing back towards company cars instead of employees opting for cash alternatives.
If you are an employer thinking about moving your fleet electric and want to know about chargepoint installation for commercial premises, please contact us for a free on-site consultation.
If you are an employee with an electric vehicle, you will want to charge your chargepoint from home. Contact us to talk about your requirements, and whether you qualify for the OLEV grant to cover the cost.