Electric car company car tax
There's never been a better time to choose an electric vehicle (EV) as a company car...
If you are about to change your company car, do yourself a favour – consider switching to an electric vehicle (EV). You could save a small fortune in tax.
The UK government is pushing strongly for the adoption of electric cars as we move closer to the ban on the sale of new petrol and diesel cars in 2030.
One of the levers the government has its disposal is taxation. In the case of electric cars, it's using the carrot of low tax bills to encourage company car drivers to hand back the keys to their petrol or diesel and choose an electric vehicle instead.
BiK rate for fully electric cars
There may be no such thing as a free lunch, but you can get a free car. At least, you can if you've been running an EV during the 2020/21 tax year.
At the start of the 2020/21 tax period the government lowered the benefit-in-kind (BIK) tax rate for electric vehicles from 16% to 0%. So although an employer would still need to allow an employee enough budget to afford the contract hire or leasing rates, the driver would pay no BIK at all for the year.
For 2021/22 the rate is 1%, for 2022/23 the rate is 2%.
To put that in context, the Hyundai i10 petrol-powered city car has emissions of at least 114g/km and so sits in the 26% tax bracket for 2021/22. So a high-performance SUV like a Jaguar I-Pace or Tesla Model 3 will cost a company car driver less in tax than a tiny city runabout.
Reasons to think twice
From a tax perspective, there's no reason to choose anything other than an electric vehicle as a company car. However, there are a few things that could stand in the way.
Supply can be a problem for some models, and then there's the cost of leasing to consider. Generally speaking, an electric car is quite a lot more expensive to lease than a petrol or diesel vehicle of similar size. So the monthly leasing budget your company allows may not be enough to cover the payments for an EV. You can compare rates on our leasing pages.
Long journeys are more straightforward in a petrol, diesel, or hybrid, and if you don't have somewhere to install a charging point at home then running an EV won't be such a practical option.
Don't turn up late to the party
The government typically announces company car tax rates for a few years at a time. So at the moment, unless there is a change of policy, we know how company cars will be taxed until the end of the 2024/25 tax year.
What happens after this date isn't certain, but it seems unlikely that such generous tax rates will continue indefinitely. With electric cars expected to take an ever greater market share as we move towards 2030, you can expect the tax bandings to gradually climb back up again to safeguard revenue that would otherwise be lost. So if you think an EV could suit both your private and business driving, that's a compelling reason to make the switch sooner rather than later.
In the longer term, the current CO2-based system will need to be replaced: once the majority of company cars no longer emit CO2, another metric will be needed to determine who pays what - and that is likely to include electric car owners having to contribute.
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