Tax & Admin

Benefit in kind electric cars

Business Advice | 12 July 2021 | 3 years ago

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.)
Receiving a Plug-in Car Grant is quite easy and convenient as all dealerships are aware of these grants and will handle all of the paperwork for you. If you are not sure whether the electric car that you are interested in is eligible for one of these grants, simply head down to your local car dealership and chat to them.

This grant is yet another effort from the government to push people to start investing in electric cars and start taking sustainability and CO2 emissions seriously.

Will I be saving money if I buy an electric car instead of a fuel-powered car?

Many business owners are hesitant to buy an electric car. Firstly, because they may not know much about electric vehicles, tradition and habit around fuel-powered cars is commonplace, and the second reason is the expense. In general, electric cars are a little on the pricey side, especially when comparing them to the listed prices of fuel-powered vehicles. But you need to keep the long-term in mind. Over time, especially if you cash in on Plug-In Car Grants, and BIK benefits, an electric car can truly save you money.

Let’s first look at the BIK benefits. An electric car, depending on the type and CO2 emissions, will have you paying anywhere between 1% and 10% in the 2021/2022 tax year. In comparison, fuel-powered cars will cost your company anywhere between 20% and 27% each year and this amount will also depend on the model and CO2 emissions. Let’s look at a little example. When comparing the new electric e-Golf to the Golf GT Petrol 1.5, the e-golf would pay a BIK amount of just £55.20 for the 2021/2022 tax year where the Golf GT Petrol would have to pay a BIK amount of £1,392 for the same tax year.

Secondly, when you buy an electric vehicle, depending on the model, you may be eligible for the Plug-in Car Grant offered by the government, which could save you as much as 35% off of the listed price!

Thirdly, electric cars are much cheaper to run than fuel-powered cars. In the long run you will definitely save hundreds of pounds as you won’t constantly have to fill up with fuel. With charging stations becoming more readily available all over the UK, your savings will only multiple when purchasing an electric vehicle.

Road tax for electric cars

Road tax is yet another area in which electric car owners will enjoy superior benefits. Road tax in the UK is based on CO2 emissions, and since fully electric cars do not produce any CO2 emissions, they are fully exempt from paying road tax. The less your CO2 emissions are, the less you will have to pay in road tax, thus potentially saving your company hundreds of pounds.

The other great thing about electric cars is that they are exempt from paying congestion charge tax. Congestion charge tax applies to cars that are traveling to clean air zones, and your company vehicle may have to travel to these areas regularly depending on your business location and if you are making regular deliveries to these areas.

To give you an idea on how much you’d be saving, vehicles traveling to London between 7:00 and 18:00 during the week will need to be £11.50 per day.

What are some of the other benefits of electric cars?

On top of the tax benefits, and the Plug-in Grant, there are many other advantages to owning an electric vehicle, whether it be for your personal use or for your business. Some advantages include:

  • Zero emissions – sleep easier knowing that you are doing your bit for the environment by driving a car that produces zero emissions.
  • Cheaper to run – you are definitely going to save on fuel prices as time progresses as fuel is expected to increase while energy sources such as electricity are set to become cheaper and more sustainable.
  • Investing in the future – electric charging stations are being introduced in parking lots and business premises throughout the UK. The scene is set for charging to be more readily available, making owning an electric vehicle all the more convenient.
  • Attract sustainably minded clientele – consumers are becoming more sustainably minded and are becoming more intentional about the suppliers and retailers they support. Owning an electric vehicle shows your commitment to the environment, which potential clients are interested in supporting.
  • Comfort – no noise, no fuss. Electric cars are known for being exceptionally comfortable and a joy to drive.
  • Quick acceleration – the batteries in electrical vehicles allow you almost instant acceleration.
  • Variety – as electric cars are becoming more popular, there is a much wider variety for you to choose from. There are also more and more secondhand electric cars coming onto the market for you to choose from.
As a business owner, an electric car is definitely an investment worth looking into. While they may require some capital to begin with, there are also many affordable monthly payment plans for electric vehicles in the UK. Not only will you be able to save on tax, but you’ll also be doing your bit for the environment, and potential clients may admire your sustainable choices. Benefit in kind electric cars are definitely where the future of transport is headed, so now is the ideal time to invest.

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