Company cars and the benefits of going electric

23 July 2020 Abdul Kaleel Business Taxes

The latest tax rules for company cars show that now may be the time to convert to an electric vehicle, with significant benefits for both employer and employee.

As a country, over the last few months we have shown that we can pull together to face any challenge that comes our way. Another challenge on the Government’s agenda is the fight against climate change. Changes to the taxation of company cars is one way in which the Government is trying to encourage us all to be greener.


Benefit in kind on company cars

Historically, a company car has been taxed based on two things: the list price and the CO2 emissions. These two figures create a ‘taxable benefit in kind’ (BIK), on which employers and employees pay tax and NIC. To encourage ever greener cars, HM Revenue & Customs has been increasing BIK rates on petrol and diesel vehicles, and introducing lower BIK rates for fuel efficient and electric vehicles.

Until recently, the rates on electric cars have been similar to those attached to petrol or diesel vehicles.


New rates introduced for electric and hybrid cars

However, the good news for taxpayers is that new tax rates have been introduced for electric and hybrid company cars which could potentially save your business and employees thousands of pounds in tax!

The rates, which came into force from 6 April 2020, calculate the company car taxable benefit based on the ‘electric range’ of the vehicle in combination with its level of CO2 emissions.

Where a car is capable of running more than 130 miles on battery power alone whilst producing between zero and 50g/km of carbon dioxide, no tax will have to be paid on the company car by the employee or employer for the 2020/21 tax year. The rates are then increased to 1% for 2021/22 and 2% for 2022/23.


Changes in the rates of benefit in kind


  CO2 Electric 2018/19 2019/20 2020/21 2021/22 2022/23
  g/km Range % % % % %
Electric 0 N/A 13 16 0 1 2
Hybrid 1-50 >130 13 16 0 1 2
Hybrid 1-50 70-129 13 16 3 4 5
Hybrid 1-50 40-69 13 16 6 7 8
Hybrid 1-50 30-39 13 16 10 11 12
Hybrid 1-50 <30 13 16 12 13 14
Hybrid 50-54 N/A 16 19 13 14 15


This could result in a significant tax saving for an employee running an electric vehicle, compared to an equivalent petrol or diesel model.

Savings for employers

For employers, they will save;

  • NIC on the reduced BIK
  • where the electric car has emissions below 50g/km, 100% First Years Allowance can be claimed on the purchase price of the vehicle (provided it is new). This will effectively give tax relief on the vehicle in the year of purchase, as opposed to claiming relief at 18%/6% over a number of years.

The savings generated by adopting an electric vehicle will depend on many factors, but the tax savings could provide a significant reason to consider “going green”

Shorts team of tax specialists are available to help you review your current company car polices and advise on changes to implement a more tax efficient strategy. If you'd like to discuss this in more detail, then please arrange your consultation with a member of our tax team.

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