Changes to company car tax on electric vehicles

Changes to company car tax on electric vehicles

Changes to company car tax on electric vehicles

As the motoring industry looks toward a greener future, a review of how Benefit In Kind (BIK) tax is levied has delivered welcome news for drivers of company cars. For the tax year 2020/21, changes to company car tax on electric vehicles indicate that drivers will pay no BIK tax at all. This move is designed to encourage greater uptake of such vehicles from drivers and fleet managers. This is a reassuring announcement for bodies which had been calling out for more information on the future of company car tax plans.

The 0% figure for electric vehicles is matched on electric cars already registered as company vehicles before the April deadline. For those who choose a new car that has a pure electric mile range greater than 130 miles and which, crucially, has a CO2 emission level of between 1-50 g/km. This decision follows a review of the impacts of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). The BIK tax on all such vehicles will rise from 0% to 1% in 2021/22, and then to 2% in 2022/23, per HMRC figures.

From 2023/24, the rates will be realigned at a level decided by further review of the impact of the current changes. With an undertaking to deliver all such information at least two years in advance going forward. This is to avoid a repeat of the uncertainty which has affected drivers and fleet managers in recent times.

Signs are that the news has been given a cautious welcome, with representatives of the concerned parties stating that the announcement had brought welcome clarity at last. Figures have shown that with the waters being muddied regarding company vehicle taxation, the uptake of company cars had slowed; unable to know what the tax burden would be, potential drivers were simply choosing not to drive a company car. 

BIK Taxation and businesses

This decision on BIK taxation is important because many employees have found that the levying of these taxes made it uneconomic for them to accept a company car. The trend recently has been for these drivers to use their personal car when driving for work, and then claim back the mileage. As a result, the attractiveness of a company car has dimmed. A blow for employers, who could previously not only use the offer of a car as an incentive to prospective employees, but could declare repair costs and maintenance as a loss for tax purposes.

The tables below show the BIK rates for vehicles (electric, petrol and RDE2 Diesel ) with different CO2 emissions with less than 50 g/km before and after the 6th of April 2020. 

BIK Before 6th April 2020

Changes to company car tax on electric vehicles BIK After 6th April 2020

This latest announcement again makes it attractive for companies to offer cars to their employees. This crucially, makes it worthwhile for the employees themselves to accept. Moreover, after a few years driving an electric vehicle, many of these motorists may choose to make the move to an emission-free car permanently.

As the UK is one of many countries which has committed to making all new vehicles emission-free by 2040 at the latest, it is reasonable to assume that any decisions on tax in the future will be made with one eye on that commitment. 

July 2019 saw the unveiling of the Road to Zero strategy, which underlined an intention to get British motorists into greener cars as soon as possible. Aiming to ensure that as many new vehicles as feasible would be ultra-low emission by 2030. Electric vehicles naturally form a vitally important plank of this strategy, and this announcement on company cars is one of the first signs of how the overall emissions policy might be delivered.

A further boost to the potential uptake of greener company cars came in October, with news of further funding for electric vehicle (EV) charging infrastructure. The UK’s relatively sparse charging network has previously been seen as a reason for lagging uptake. As many as 3,000 new “rapid chargers” are promised to be delivered by 2024.

Electric car tax summary

The latest news is considered to be a significant illumination of where drivers stand as the WLTP is adopted in full to replace the New European Driving Cycle (NEDC) data that previously informed decisions over green vehicles. 

Cars and vans which had initially been tested under the NEDC regulation were expected, when re-tested under WLTP, to be anywhere between 10-20% more polluting than before. In some cases, the number may rise as high as 30% higher, which emphasises just how important it will be to switch from higher-emission models to lower. Under the new tax plan, vehicles with more than 160 g/km CO2 emissions will have a BIK tax rate of 37%. For fleet managers and those interested in driving a company car, the message could not be clearer as we head towards a new tax year.

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