From the financial tax year of 2020, the rules for any Benefit In Kind (BIK) have changed; also widely known as company car tax, on electric cars. This change follows a review from the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emissions regulations.
These are designed to increase the number of electric vehicles, which already contribute to almost 60% of new registrations in the UK.
What Is Company Car Tax?
On many occasions, an employee receives a company car which is also deemed for personal use. This is classed as a company perk and is indeed taxable. You may have noticed us referring to company car tax as BIK (Benefit in Kind) as this is the formal name given.
The BIK is split into two sections. What the employee is liable for and what the employer is liable for. The employee (driver) has a complicated process to work out the tax, being the P11D value of the car, multiplied by the band the model of vehicle fits under, also multiplied by your income tax bracket.
The employer, however, is a slightly easier procedure and is determined by also the P11D value of the vehicle, and its Co2 emissions.
Company Car Tax Bands
As the WLTP sees higher on-paper emissions, drivers could have been faced with higher costs. So to offset this, HM Treasury has revised its BIK rates for 2020/21 to 0% for electric car users.
As you can imagine, these new electric car benefit in kind rates have been introduced to encourage drivers to switch to a greener commute. Diesel vehicles are already subject to a higher company car tax rate, and the 0% exemption will only tempt the owners to make the transition even more.
HM Treasury has now created two new Benefit In Kind tables for company car drivers. These reflect drivers who have registered a car before April 6th 2020 and those who have registered after April 6th 2020.
As it stands the rate will increase 1% each year to 1% for 2021/22 and to 2% for 2022/23.While percentages for 2023/24 and 2024/25 have been frozen at the 2022/23 levels. Future levels are still yet to be determined.
Do Hybrids Pay Company Car Tax?
If your company car is a hybrid, you can also benefit from the BIK rates above, different rates apply depending on the vehicle’s date of registration, see the tables above for more detail. The rate at which your hybrid car will fall within will depend on the CO2 emissions of the vehicle and the electric range available.
Fortunately, there are tax reductions for hybrid users that have a shorter pure electrical range, but they aren’t however, quite as generous. These rates are set to change in the coming tax years.
Do Vans Pay Company Car Tax?
From the tax year 2021/22 zero-emission vans have a 0% BIK rate. This has changed from its previous standard benefit charge and is also set to increase year by year. Vans are also subject to different rules than a company car, regardless if the van is diesel or electric; they face what we know as a “van benefit charge”. HMRC have a more in-depth page dedicated to van benefit charges that you can take a look at.
The Government has voiced that providing us with a clear future of the rates to come, will help businesses to make more informed decisions on how they are going to make the switch to zero emissions.
And they aim to provide percentages at least two years ahead. To calculate charges for your company car tax you can use this car fuel benefits calculator.