Benefit in Kind (BiK) tax, sometimes referred to as company car tax, is a crucial aspect to understand if you’re considering an electric vehicle (EV) through your employer. This guide breaks down how BiK tax applies to electric cars, highlighting the advantages compared to traditional petrol or diesel vehicles.
What is Benefit in Kind Tax?
Benefit in Kind tax is levied on employees for perks they receive from their company in addition to their regular salary. These “benefits” are considered taxable income by tax authorities and are therefore subject to taxation. When it comes to company cars, if you use the vehicle for personal use, this is treated as a benefit, and you’ll be required to pay BiK tax. This tax is typically deducted from your pre-tax income, meaning it’s paid before you receive your net salary.
How is Electric Vehicle Benefit in Kind Tax Calculated?
The calculation of Benefit in Kind tax for any company car, including electric vehicles, hinges on two key factors: the car’s official CO2 emissions figure and its P11D value. The P11D value represents the list price of the car, inclusive of VAT and any delivery charges. Importantly, it does not include the car’s first registration fee or annual road tax.
For electric vehicles, the significantly lower (or zero) CO2 emissions compared to petrol or diesel cars play a major role in reducing the BiK tax liability. This is where electric cars gain a considerable advantage.
Electric Vehicle Benefit in Kind Tax Rates: Current and Future
Benefit in Kind tax rates are structured in bands based on a vehicle’s CO2 emissions. The lower the emissions, the lower the BiK rate, making electric cars particularly attractive.
Here’s what you should know about BiK rates for electric vehicles:
- Currently Low Rates: Electric vehicles benefit from exceptionally low BiK rates. This has been a deliberate strategy to encourage the adoption of EVs.
- Gradual Increases: While remaining low, BiK rates for EVs are set to increase incrementally. Expect a 1% annual increase up to 2027, reaching 5%.
- Further Increments: Following 2027, the increase will accelerate slightly to 2% per year, reaching 9% in 2029.
Despite these planned increases, electric vehicle BiK rates are projected to remain considerably lower than those for petrol, diesel, and even hybrid vehicles for the foreseeable future.
Electric Car BiK vs. Hybrid and Petrol Car BiK
The difference in Benefit in Kind tax rates between electric cars and their combustion engine counterparts is substantial. While BiK for EVs is gradually increasing from a very low base, the rates for petrol, diesel, and many hybrid vehicles are significantly higher and, in many cases, increasing more sharply.
This difference is primarily driven by the CO2 emissions factor in the BiK calculation. Traditional vehicles with higher emissions attract much steeper BiK rates, making them a less financially attractive option as company cars compared to electric vehicles.
| Vehicle Type | Maximum BiK Rate (Illustrative) | CO2 Emission Basis |
|---|---|---|
| Electric Vehicle (EV) | Lower Rates, Gradual Increase | 0g CO₂ |
| Hybrid Vehicle | Mid-Range Rates | 1-50g CO₂ (Range Dependent) |
| Petrol/Diesel Car | Higher Rates | 51g CO₂ and above |
Table showing maximum rates of BiK rates for each vehicle type. Hybrid range based on 1-50g CO₂, non-ev based on 51g CO₂ and above. Rates are simplified for illustration and may vary based on specific tax year and vehicle details. Consult official tax guidelines for precise figures.
This image depicts an electric car being charged, visually representing the core technology behind electric vehicles and their zero-emission capabilities which directly impact Benefit in Kind tax.
What Do BiK Rate Adjustments Mean for Electric Car Drivers?
For current electric car drivers benefiting from company car schemes, the message is overwhelmingly positive. You will continue to enjoy significantly reduced Benefit in Kind tax rates compared to drivers of petrol or diesel cars. This translates to continued savings and reinforces the financial advantage of choosing an EV as a company car.
If you are considering a new company car, the low BiK rates for electric vehicles make them a highly compelling option. The combination of lower taxation, reduced running costs (fuel/electricity), and environmental benefits makes electric cars a smart financial and practical choice for company car users.
Schemes like salary sacrifice arrangements can further enhance the affordability of electric vehicles by allowing employees to lease EVs at a reduced cost through pre-tax salary deductions. For businesses, offering electric cars through company schemes can be an attractive employee benefit, demonstrating a commitment to sustainability and providing cost-effective transport solutions.
For company directors and shareholders, electric vehicles present a particularly tax-efficient option. The reduced Benefit in Kind liability, coupled with potential business tax advantages associated with electric vehicle adoption, can lead to significant overall savings while contributing to a greener corporate footprint.
This image represents an electric car salary sacrifice scheme, illustrating a practical way for employees to access electric vehicles and benefit from favorable Benefit in Kind tax rates through employer-sponsored programs.
By understanding Benefit in Kind tax and its favorable application to electric vehicles, both employees and employers can make informed decisions that are financially sound and environmentally responsible, driving the transition to cleaner transportation.
