Why electric company cars are tax-efficient

Aug 3, 2021

If you’re an employer who provides company cars to your staff members, you really should consider electric company cars sooner rather than later.

Not only will you be doing your bit for the environment by reducing carbon emissions, but you will also be providing a tax-efficient benefit-in-kind (BIK).

The Government is certainly dangling the carrot to employers in a bid to contribute towards cutting the UK’s carbon emissions 78% by 2035.

With more electric vehicles to pick from and an improving infrastructure, providing a zero-emissions electric company car has never been more viable.

To understand whether it might work for you, we need to weigh up the pros and cons – from both your perspective as an employer, and that of an employee.

If you’d prefer to view our video summary on this blog, you can click here.

Electric company car tax position

When you provide a company car as a BIK, a tax charge is assessed on the employee and is subject to income tax at their marginal rate.

At the same time, you are assessed for Class 1A National Insurance contributions (NICs) on the zero-emission company car’s BIK value.

For those reasons, both you and your employees should want to keep the assessed BIK low. The lower the emissions, and greater electric range, the lower the bill.

The car’s list price, electric-only range, and its CO² emissions then come into the equation to determine the tax liabilities for you and your staff.

The tax saving

Let’s say you have an employee. She’s a higher-rate taxpayer and has a diesel company car, which is available for the whole of 2021/22.

The car has a list price of £40,000 and produces 198g/km in CO² emissions, meaning the BIK percentage is the maximum of 37%.

As a result, she will have a BIK charge of £14,800. This results in an income tax bill of £5,920 for her and a Class 1A NICs liability of £2,042.40 for you.

If you were to provide a zero-emissions company car, the BIK percentage would be 1% which results in a BIK charge of just £400.

Your employee’s tax charge would be £160 and your Class 1A NICs liability would be £55.20, so it’s crystal clear how much you could save.

Government incentives

If you want to make the move towards an electric fleet of vehicles in your business, there are government grants to help.

The plug-in car grant is currently worth £2,500 on electric vehicles worth up to £35,000 in 2021/22. You have until 5 April 2023 to claim this.

To help you with the installation of electric charging infrastructure at your workplace, there’s the workplace charging scheme.

Assuming you meet the eligibility criteria, you can claim support towards the upfront costs of buying and installing electric vehicle charging points.

It’s also far cheaper to reimburse employees for business-related journeys in an electric vehicle when the current fuel-only mileage rate is 4p per mile.

Talk to us about the benefits of providing electric cars.