Good news to those who get car sponsored from their employer in UK. Benefit in Kind (BiK) tax was set to 0% for Electric cars from April 2020. This rate would then increase to 1% for 2021/22 and 2% for 2022/23 for vehicles registered after 6th April 2020. But still is a good deal compared to normal gas powered car for which its more than 16%.
This is the UK government’s initiative to encourage people to move to driving electric cars. Indirectly helping to reduce harmful emissions by limiting the number of non-electric vehicles on the roads. So this means company car drivers who choose an EV will save thousands compared with the driver of a comparable petrol or diesel powered car.
Benefit in Kind Tax Rate (UK)
| Tax Year | 2019 | 2020 | 2021 | 2022 |
| Electric Car | 16% | 0% | 0% | 0% |
| ICE Car | 16% – 36% | 16% – 36% | 16% – 36% | 16% – 36% |
Why haven’t I heard of this before?
It all sounds too good to be true really doesn’t it? We bet that you’re starting to kick yourself for not knowing this in the past years. However, there was previously a ‘catch’ – and most likely the main reason this didn’t catch on. This saving is judged to be what’s known as a Benefit in Kind (BiK). Meaning that the Government had been giving a tax break with one hand and taking it away with the other.
Prior to April 6th, 2020, the BiK rate on pure electric vehicles was 16 percent. Therefore, the way that the maths worked out meant that much of the tax benefit of the salary sacrifice was eaten up by the 16% charge. However, the changes put in place from April 6th, meant that electric vehicle company car tax dropped to a zero BiK rate and salary sacrifice benefits can now be felt in full.
What is Benefit in Kind (BiK)?
Benefit-in-kind (or BiK) is a tax on employees or directors who receive benefits or perks on top of their salary. They are sometimes called ‘perks’ or ‘fringe benefits’. They include things like company cars, private medical insurance paid for by the employer.
When a car is provided for an employee by their employer that is available for personal use, the employee must pay some tax on the effective use. If you have a company car for private use, you will have to pay a BiK contribution.
How does it work?
It’s a fairly simple concept, you opt to forgo a certain chunk of your salary and your employer pays that into your choice of benefit scheme instead. This saves you both national insurance and income tax. Which is 32 percent for a basic rate taxpayer and 42 percent for a higher rate taxpayer.
So, what does this have to do with EVs? A special exemption was put in place for ultra-low emission vehicles to encourage motorists to swap their petrol and diesel cars for electric ones. This basically means that the government theoretically has no problem with your employer allowing you to pay for an electric car from untaxed income through salary sacrifice.
How to calculate BiK company car tax?
To find out how much tax you will pay, you will have to find out the car’s P11D value. It’s essentially the retail price of the car. You will also need to find out your car’s official CO2 emissions, which can be found on HMRC website. You will then be able to find out which tax band your car falls into. Once you have this, you’ll be able to work out how much company car tax you need to pay.
Once you got all above you can calculate using the company car tax using following formula:
P11D Value x Benefit in Kind (BiK) CO2 Rate = BiK Value
And then
BiK Value x Tax Rate = Annual Company Car / BiK Tax
Tesla Model 3 Standard
- P11D Value – £42,935
- CO2 Emissions – 0 g/km – 0% of P11D value is taxed in 2020/21
- Employee’s income tax rate – Higher 40%
So in this example:
£42,935 x 0% = £0
£0 x 40% = £0 Annual tax
Or £0 per month
BMW 320i M Sport
- P11D Value – £35,465
- CO2 Emissions – 149 g/km – 32% of P11D value is taxed in 2020/21
- Employee’s income tax rate – Higher 40%
So in this example:
£35,465 x 32% = £11,348.80
£11,348.80 x 40% = £4,539.52 Annual tax
Or £378.29 per month
These figures are truly money saving ideas. But are few more areas outside BIK tax which can take buying a electric car even further nearly half price. But it depends which one applies to your situation. Here is a video by a YouTuber that help explain it in detail.
Revolution Electrified's Take
Electric cars are becoming more popular and more accessible as each year goes by. One of the reasons is that they attract low benefit in kind rates, and can be a really cost-effective option when selecting and then running a new company car.
UK government is clearly trying to push drivers and businesses towards investing in the best low emissions company cars through the use of tax incentives and, as a result of government policy, there is now a considerable electric car business tax benefit.
Electric car benefit-in-kind (BIK) tax treatment is significantly more beneficial than that for conventional engine cars.
Disclaimer: This applies only if you live and work in UK and get car sponsored from employer. Please consult your accountant before purchase.
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