0% Benefit in Kind for Electric Cars

With reducing UK Carbon Dioxide emissions high on the Government’s agenda, generous tax breaks are being offered to employees to increase the take up of electric cars. These incentives will see the introduction of incredibly low tax rates for company car drivers of electric cars. Many businesses are already making buying decisions based on these new rules. 

From 6 April 2020 (the start of the 2020/21 tax year) fully electric cars and plug-in hybrid cars with an electric only range over 130miles, will benefit from a 0% Benefit in Kind (“BIK”) rate. The rate increases to 1% in 2021/22 and 2% in 2022/23. Across the typical 3 year life of a company car the employee (or director) will therefore pay very little income tax.

This year will see the introduction of a large number of new electric cars, but a couple of current examples are:

VW e-GOLF – List price £31,075.  Tax cost to a higher rate tax payer over all 3 years combined is just £373 or an average cost of £10 per month.

Jaguar I-PACE – List price £64,495. Tax cost to a higher rate tax payer over all 3 years combined is just £774 or an average cost of £22 per month.

These new rates can be coupled with a salary sacrifice arrangements which mean the income tax and National Insurance Contributions (“NICs”) saved on the salary sacrificed can be kept by the employee. 

The employer can also pay 4 pence per mile tax free for business mileage undertaken in an electric company car.

There will also be tax savings for the employer. A business purchasing an electric car can currently benefit from 100% capital allowances (full write off for tax purposes) in year one. For leased cars, full tax relief is available for the lease cost against profits and ordinarily 50% of the VAT can also be recovered. In addition, the low BIK will give rise to a much reduced employer’s NICs bill because employer’s NICs are charged at 13.8% on the value of most BIKs.

Put together, these measures mean that it will be highly tax efficient to have an electric car as a company car through until at least 2023.

For more information on benefits in kind and company cars please contact us on the details listed above or by submitting an enquiry.