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Benefit In Kind (BIK) of Buying Electric Cars Through Your Limited Company

Providing electric cars as company vehicles can be an attractive perk for employees. Electric cars are seen as cutting-edge, innovative, and futuristic. Offering the use of electric vehicles may be a perk for luring top talent, enhancing employee happiness, and fostering a pleasant office environment.

In recent years, there have been notable shifts in the tax landscape concerning company cars. These changes have impacted the attractiveness of company cars for both employers and employees. Therefore, it becomes essential to examine the tax regulations surrounding company cars and assess whether electric vehicles present a more appealing option compared to traditional petrol or diesel counterparts.

Benefit-in-Kind Charges:

A company car provides advantages to the employee and is considered a benefit in kind for tax purposes which results in the following for an individual.

  • They must pay taxes on benefit in kind value.
  • Employer needs to pay the Employer’s National Insurance Contributions (NICs) based on the benefit’s value.  

It comes under the responsibility of the employer to inform HMRC about any Benefits-in-Kind through submitting the P11D which ensures that both parties (the employer and the individual) pay the appropriate amount of tax on the benefit.

P11D must be filed by the 6th of July following the relevant tax year. The company’s year-end date is irrelevant here.

Tax you will be paying on a company car:

To determine the tax amount payable on a company car, you should begin by calculating the P11D value, which represents the car’s list price including any optional extras. Next, multiply this value by your applicable income tax rate, which is determined by your earnings. Lastly, multiply the result by the vehicle’s Benefit-in-Kind (BiK) rate, which is determined based on its emissions.

Understanding the impact of emissions is especially significant when comparing the tax advantages of electric cars to those of petrol or diesel vehicles. Electric cars offer greater tax benefits due to their lower or zero emissions, which results in lower BiK rates. This incentivizes the use of electric vehicles as a greener and more tax-efficient option for company car users.

Calculating P11D Value:

Calculating the P11D value of a company car involves considering several factors such as the vehicle’s list price, availability period, capital contributions, engine size, fuel type, and CO2 emissions. Each of them are defined below.

1. List Price: This refers to the original retail price of the vehicle, including any optional extras or accessories.

2. Availability Period: It represents the duration during which the car was available for personal use by the employee.

3. Capital Contributions: These are any payments made by the employee towards the cost of the vehicle, which reduces the P11D value accordingly. Employees can make up to £5,000 of ‘capital contributions’, which are payments towards the cost of the vehicle and any accessories, and they are deductible for tax purposes.

4. Engine Size: It refers to the capacity of the vehicle’s engine, typically measured in liters (L) or cubic centimeters (cc).

5. Fuel Type: This indicates the type of fuel the vehicle uses, such as petrol, diesel, or electric.

6. CO2 Emissions: It represents the amount of carbon dioxide emitted by the vehicle during operation. Lower CO2 emissions result in lower tax liabilities.

Understanding these terms and their role in calculating the P11D value is crucial for accurately assessing the tax implications of a company car. By considering factors such as engine size, fuel type, and CO2 emissions, it becomes evident why electric cars often have greater tax benefits compared to petrol or diesel vehicles due to their lower or zero emissions.

Benefits of using electric vehicles:

The government is encouraging businesses to replace their fleets of petrol and diesel cars with more ecologically friendly models. They have accomplished this, among other things, by enacting advantageous tax incentives for electric cars. Electric vehicles are taxed at a rate that is far lower than that applied to petrol and diesel vehicles, which are subject to a percentage charge of at least 30%. The tax on electric cars is just 2% as of the current tax year, and these rates will not change until the 2024–2025 tax year.

It is vital to remember that, as compared to completely electric vehicles, petrol-electric hybrids are taxed similarly to petrol automobiles, considering the vehicle’s electric range.

2024/25 Company car tax rates

A complete list is available on the HMRC website. Work out the appropriate percentage for company car benefits (480: Appendix 2) – GOV.UK (www.gov.uk)

Electric and hybrid vehicle rates

Engine TypeCO2 Emissions (g/km)Electric Mileage Range (miles)Percentage Multiplier
Electric02%
Hybrid1 to 50130 and above2%
70 – 1295%
40 – 698%
30 – 3912%
Less than 3014%

Petrol vehicle rates

Engine TypeCO2 Emissions (g/km)Electric Mileage Range (miles)Percentage Multiplier
Petrol100 to 10425%
105 to 10926%
110 to 11427%
115 to 11928%
120 to 12429%

The value of the Benefit-in-Kind (BIK) is significantly influenced by the zero or very low emissions of electric vehicles and efficient hybrids as seen by the table above.

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