The Government is committed to helping increase the number of electric vehicles on the road in order to meet ambitious climate change targets and improve air quality in major cities.
The way vehicle taxation is structured reflects this priority with a range of incentives. Benefits include the introduction of new Benefit in Kind (BIK) bands for EVs from 2020/21. Government grants, National Insurance savings, exemptions from Vehicle Excise Duty (VED) and special Capital Allowances for ultra-low emission cars and fully electric vehicles have been enhanced.
Tax changes which come into effect in 2020/2021 will help to reduce company car tax bills for drivers. From 6th April, fully electric cars will pay no Company Car Tax (CCT) in 2020/21, just 1% in 2021/22 and 2% in 2022/23.
In addition, the government has introduced five new CCT bands for plug-in hybrid cars which emit 1-50g of CO2/km which will further benefit those EVs that can drive furthest with zero tailpipe emissions. There has never been a better time to switch your fleet or business vehicles to electric.
Benefit In Kind and Class 1A National Insurance
Company car Benefit in Kind (BIK) tax rates are set in advance to enable businesses to plan their future outlay on company vehicles and calculate the financial cost to themselves and employees. Like BIK tax, employers’ Class 1A National Insurance contributions, are linked to a car’s CO2 emissions and P11D (purchase cost) value.
Benefits in Kind are benefits which employees receive from their employment but which are not included in their salary or wages. This includes items such as company cars. BIK tax is payable on a company car if it’s available for private use. In nearly all cases this includes journeys between home and work.
HM Revenue and Customs calculates that Benefit in Kind is charged based on cash equivalent value of benefit. Typically, employers would submit a P11D form that details any work related, taxable expenses and taxable benefits you’ve received over the tax year, which runs from 6th April – 5th April.
Benefit in Kind may be taxed under PAYE (Pay as you earn) by being offset against personal tax allowances in your PAYE code. If the Benefits in Kind are not included in your tax code for the year when you receive them, the tax may be collected after the end of the tax year.
Company cars will be categorised into a series of Benefit in Kind bands that are based on a vehicle’s fuel or energy type and its CO2 rating. It’s this band that is weighted as a percentage of the vehicle’s specific P11D value, which would be based on the list price including optional extras, VAT and delivery charges, minus the first year registration fee, annual VED car tax or any Plug-In Car Grant.
In the 2019 / 2020 tax year, a zero emissions vehicle sat in a 16% BIK band bracket. This meant the employee would be liable to pay tax on 16% of the vehicle’s calculated P11D value.
From 6th April 2020, the BIK brackets have been substantially revised. The taxable figure for a zero emissions vehicle now drops to zero. This means there is no BIK tax to pay whatsoever if your company car emits zero tailpipe emissions, while the taxable figure only rises marginally to 1% in 2021 and 2% in 2022, as shown in the table below. The Budget confirmed that the 2% rate will be maintained through to the 2024/25 tax year, providing drivers and employers with company car tax certainty over five financial years.
Further, should your employer decide to install a chargepoint at your home, there is no additional BIK tax to you or them for the privilege. A full breakdown of the Benefit in Kind bands for Ultra Low Emissions Vehicles (ULEV) is provided below.
The Benefit in Kind band change is also being taken into consideration retrospectively, meaning that company car drivers that took delivery of their fully electric company car before 6th April 2020 can also benefit from the 0% rule change from 6th April.
For cars first registered from 6 April 2020
|CO2 emissions (g/km)||Electric range (miles)||2020 – 21 (%)||2021 – 22 (%)||2022 – 23 (%)|
|1 – 50||>130||0||1||2|
|1 – 50||70 – 129||3||4||5|
|1 – 50||40 – 69||6||7||8|
|1 – 50||30 – 39||10||11||12|
|1 – 50||<30||12||13||14|
|51 – 54||–||13||14||15|
|55 – 59||–||14||15||16|
|60 – 64||–||15||16||17|
|65 – 69||–||16||17||18|
|75 – 79||–||18||19||20|
|80 – 84||–||19||20||21|
|85 – 89||–||20||21||22|
|90 – 94||–||21||22||23|
|95 – 99||–||22||23||24|
|100 – 104||–||23||24||25|
|105 – 109||–||24||25||26|
|110 – 114||–||25||26||27|
|115 – 119||–||26||27||28|
|120 – 124||–||27||28||29|
|125 – 129||–||28||29||30|
|130 – 134||–||29||30||31|
|140 – 144||–||31||32||33|
|145 – 149||–||32||33||34|
|150 – 154||–||33||34||35|
|155 – 159||–||34||35||36|
|160 – 164||–||35||36||37|
|165 – 169||–||36||37||37|
|170 and above||–||37||37||37|
Vehicle Excise Duty
Fully electric cars are exempt from paying Vehicle Excise Duty (VED) to help support drivers who choose the cleanest, most environmentally friendly cars and vans. All cars that emit less than 75g/km CO2 will pay less road tax in the first year, delivering additional cash savings for plug-in hybrids on your company’s fleet. Fully electric cars are exempted from the “expensive car” supplement until 31st March 2025.
You can claim capitalallowances for your business when you buy vehicles that are used in your business. This allows you to offset the cost of cars you purchase for your business from your profits before you pay tax.
The rate that you can claim for capital allowance on vehicles depends on the CO2 emissions of the car. For new cars brought between April 2015 and April 2018 you can deduct the full value of the car if CO2 emissions are 75g/km or less.
For cars bought after April 2018 the emissions level to qualify for a full deduction is 50g/km and this reduces to zero emissions from April 2021. You can see the full breakdown of all of the new bands of emissions which affect capital allowances here.