Tax & admin · 12 July 2021

Benefit in kind electric cars

Did you know that more than half of all vehicles on UK roads are registered to businesses? There are many tax obligations that come with owning company vehicles, and investing in an electric car may offer you some tax-saving benefits.

In recent years, electric cars have become more affordable and efficient, with some electric cars giving as many as 300 driving miles off of a single charge! Electric cars are definitely the more sustainable choice when you look at their environmental impact, and the UK government has taken note of this and has offered some major tax savings when it comes to company vehicles’ BIK obligations.

Are you interested in investing in an electrical vehicle for your business? In this article we have a look at some of the tax benefits associated with electrical vehicles and BIK in the UK.

What is benefit in kind (BIK)?

Before we dive into the details of BIK and electric cars, it’s important that you understand what Benefit in Kind is. BIK is a tax on a non-salary benefit. This includes vehicles that are provided by the employer to the employee.

BIK rates are usually split between employer and employee, and depending on how many taxable benefits are offered, these perks can rack up quite a hefty bill especially when it comes to vehicles. Luckily, there are many incentive offers for employers who want to invest in sustainable benefits.

What is the benefit in kind rate for electric cars?

Company cars, given from the employer for the employee to use, are seen as taxable when it comes to benefit in kind.

The UK government is very keen on getting business owners and fleet managers interested in the idea of investing in electric cars as opposed to traditional petrol and diesel vehicles. So for the tax year of 2020/2021 there was a 0% benefit in kind rate for all electric vehicles. The rate for the 2021/2022 tax year is just 1% for electric cars, and it is set to be 2% for 2022/2023. This means that you are able to budget your benefit in kind tax, and the sooner you invest in one, the sooner you can start enjoying the incredibly low BIK tax rates.

The above mentioned rates apply to electric cars with electric mileages of over 130 miles and with registered CO2 emissions of under 50mg. There are many electric cars on the market that boast these statistics, and you’d have dozens of options available to you if you want to enjoy these BIK rates.

Beyond the 2022/2023 tax year the BIK rates have not yet been confirmed, but they can be expected to slowly creep up as more business owners start purchasing electric cars and adding them to their fleets. It’s expected that BIK rates for electric cars will always remain lower than petrol and diesel vehicles.

This was an incredibly progressive move on the part of the UK government and shows major steps towards sustainability and reducing carbon emissions and pollution.

Benefit in kind and electric charging stations

The government has gone a step further in terms of tax support. They have decided to include the electricity provided to vehicle charging stations in the workplace for hybrid and plug-in vehicles to be completely exempt from having to pay taxes as a BIK.

In order to qualify to be exempted from having to pay tax on this electricity, employers will need to ensure that:

  • The electricity for the charging stations needs to be delivered through a dedicated charging point
  • The charging point/s need to be situated at the workplace or a location very close to the workplace such as a dedicated parking lot, etc.
  • These charging points must be made available for employees at that particular location to use and no one should be subject to discrimination when it comes to the charging points.
This benefit is very advantageous to employers that are offering taxable benefits to their employees.

What about the BIK rate for hybrids and PHEV?

Hybrids have been incredibly popular over the past few years and provide a great in-between opportunity for vehicle owners looking to make the change over to an electric vehicle as they offer you the option to drive in electric mode, or make use of fuel to power your vehicle.

Plug in vehicles, and hybrids, will have their BIK rates calculated by how far they can drive in electric mode. Their CO2 emissions will also play a part in their overall BIK rate, but PHEVs and hybrids can still expect a very affordable BIK rate in comparison to petrol vehicles.

As an example, plug-in hybrids that can drive between 30 and 39 miles on electric mode can be expected to pay a BIK rate of 10%. Plug-in hybrids that can get between 40 and 49 miles of electric mileage are only expected to pay 6%. These would be the rates according to the 2020/2021 tax year.

What about electric vans?

Electric vans are not quite as popular as electric motorcars but they are slowly making their way into mainstream popularity for businesses as company vehicles and are ideal for things like deliveries and moving products and equipment.

Electric vans are subject to a ‘van benefit charge’. Normal vans pay £3,490 for their van benefit charge, but electric vans are subject to only 80% of this amount.

What is the Plug-in Car Grant (PiCG)?

New electric cars purchased by businesses in the UK may be eligible for a plug-in car grant. The PiCG program was introduced in 2018 and while the strategy has changed somewhat over the years, the overall aim is to encourage business owners to invest in electric cars over fuel powered cars by subsiding some of the cost of electrical vehicles.

Depending on the type of vehicle, the grant could cover as much as 35% of the electric car’s cost, with grants as much as £2,500 being given out if an electric vehicle’s listed price is below £35,000. Any additional equipment such as chargers, etc. will not be covered.

There are three categories of electric cars that are eligible for the PiCG grant, and these include:

  • Category 1: Vehicles with an electric mode range of a minimum of 70 miles, and that create zero emissions (the manufacturer needs to quote the emissions as less than 50g/km.)
  • Category 2: This category includes vehicles that have an electrical range of at least 10 miles and that create zero emissions (the manufacturer needs to quote the emissions as less than 50g/km.)
  • Category 3: Vehicles that have an electrical range of 20 miles or more and that create zero emissions (the manufacturer needs to quote the emissions as less than 50g/km.)

 
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