Everything you need to know about electric company car tax
An overhaul of the company car tax system in 2020 means going electric could be more affordable than you think
There are around 800,000 company car drivers in the UK, and the government is acutely aware of the need to steer them towards the cleanest, most efficient vehicles.
Tax incentives for cars with lower CO2 emissions were introduced back in 2002, fuelling the subsequent dash for diesel and creating an early market for plug-in hybrids a decade later. Following a recent overhaul, that system has made company car schemes among the most affordable ways to drive an electric vehicle.
*How do you calculate company car tax for an electric vehicle? *
If your employer provides you with a car that’s available for private journeys, it’s classed as a benefit-in-kind (BIK) – a term that applies to a broad spectrum of workplace perks – and taxed out of your monthly pay packet. Depending on the car you choose, this can be cheaper than buying or leasing privately.
*Autocar's company car tax calculator shows exactly what you'll pay for every make and model*
The amount you pay is based on the vehicle’s taxable value. This is a percentage of its list (or P11D) price, which gets progressively larger for cars with higher CO2 emissions. Broadly speaking, the cheapest and/or lowest-CO2 vehicles attract the least tax.
Ultra-low tax bands for EVs – which are rated at 0g/km CO2 – were reintroduced in April 2020, and the taxable value for these cars is currently frozen at 2% of the list price until April 2025. The taxable value for these cars is just 1% of the list price until April 2022, then 2% for the following three financial years. Bearing in mind that even the most efficient petrol, diesel or self-charging hybrid cars fall into the 25% or higher tax bands, it’s an incentive that easily outweighs an EV's higher list price.
Vehicle Type P11d BIK rate Taxable value
Peugeot e-208 Allure Electric £31,440 2% £628.80
Peugeot 208 1.2 PureTech 100 Allure Petrol £21,345 28% £5,976.60
BMW i4 eDrive40 M Sport Electric £53,350 2% £1067.00
BMW 320d M Sport Auto Diesel £39,440 29% £11,681.20
Annual BIK tax payments are a percentage of that taxable value and depend on your income tax rate. There are three bands in England, Wales and Northern Ireland (20%, 40% and 45%), while Scotland has a five-tier system between 19% and 46%. A 20% taxpayer, for example, would pay 20% of the vehicle’s taxable value per year, split into 12 monthly instalments.
Vehicle Type 20% Taxpayer BiK 40% Taxpayer BiK
Peugeot e-208 Allure Electric £10.48 £20.96
Peugeot 208 1.2 PureTech 100 Allure Petrol £99.61 £199.22
BMW i4 eDrive40 M Sport Electric £17.78 £35.57
BMW 320d M Sport Auto Diesel £194.69 £389.37
*What incentives are available for businesses to go electric?*
Fleet operators haven’t been overlooked – after all, they’re footing the bill for vehicles which are still typically more expensive to buy or lease than their petrol or diesel counterparts. So the government has introduced several tax incentives to tip the balance in favour of going electric.
Unlike a combustion engine car, businesses can deduct the full cost of buying or leasing an electric vehicle from their pre-tax profits, which reduces their tax bills. They also qualify for zero-rate Vehicle Excise Duty (VED, or 'road tax') and are exempt from the £335 levy that's usually applied if the list price is £40,000 or more.
Recurring tax costs are lower too. Employers pay Class 1A National Insurance Contributions (NICs) for providing workplace perks. With the new Health and Social Care Levy added from April 2022, NICs are a flat 15.05% of the taxable value, which means it’s just as heavily CO2-weighted as drivers’ Benefit-in-Kind payments.
Vehicle Type Annual Class 1A NICs
Peugeot e-208 Allure Electric £45.63
Peugeot 208 1.2 PureTech 100 Allure Petrol £787.30
BMW i4 eDrive40 M Sport Electric £71.49
BMW 320d M Sport Auto Diesel £1662.00
*Alex Grant*