David Simpson 20th Jun 2018 3 Min Read
What do you drive? An electric car? A BMW 3 Series iPerformance Saloon perhaps? Or a Nissan Leaf; Audi A3 E-Tronmor; or a Prius? Increasingly, the answer is something electric and that is particularly true in the company cars sector. According to the government and auto industry campaign Go Ultra Low, more than 70% of EV registrations are made to UK businesses.
Company cars – enjoyed by around a million employees across the country – are a prized perk of the job. An employee will be offered a car because it plays an important role in their job but if available for private use too, they will pay a BIK (benefit-in-kind) tax. Since 2018, tax rules around company cars that are available for the employee’s private use, have been designed to encourage people to choose cars with lower CO2 emissions. There is a sliding scale of costs, which sees high emission cars (petrol or diesel) paying more. Hybrid ones significantly less and electric vehicles less still. Currently, there are 21 emissions bands. Starting with vehicles that emit 0-50g/km at the bottom and at the higher end those models emitting 180g/km or more.
The amount of tax a person driving a company car pays is determined by the list price of the car. (called the ‘P11D’). This is then multiplied by a ‘BIK rate’, determined by the CO2 emissions and the type of fuel put in the car. And, then by a person’s income tax band – 20%, 40% and so forth.
Calculating the tax depends on the following calculation: first, take your company car’s P11D value (for example £24,000); second, multiply this value by the car’s tax rate which is dependent on CO2 emissions (for example a BIK rate of 13%) to get your BIK value; third, multiply this BIK value by your personal tax rate – 20%, 40% or 50%.
An example would be a Toyota Prius with a P11D value of £31,640. The figure of £31,640 is multiplied by its current BIK rate of 13%. Which gives the BIK Value of £4,113. If applying the personal tax band of 20% to that calculation. £4,113 is then multiplied by 20% to show an amount of £823 a year that is payable by the employee.
The BIK rate for a pure EV such as a Nissan Leaf currently stands at 9% in 2017/18. 13% in 2018/19 and 16% in 2019/20. Which results in a significantly lower taxable amount for a driver of one of these cars. Compared to a driver of a similarly-priced car with higher emissions. However, fast forward to 2020/21 and the BIK rate for a pure EV falls from 16% to just 2%. The tax paid on the cleanest, least polluting company cars will be dramatically less than. For cars with CO2 emissions between 1g/km and 50g/km, the BIK rate will vary between 2% and 14%. This is depending on the number of zero-emission miles the vehicle can travel. The person driving that Toyota Prius will have a BIK rate of 12% in 2020. Therefore they need to pay £759 (on a personal tax band of 20%). However, if that same person were driving a pure electric Nissan Leaf, with a P11D value of £31,935, they would have a BIK rate of 2% and only have to pay £128 BIK tax that year. There is a driving revolution in progress on UK roads and government tax incentives are helping it gain momentum. Behind an accelerated interest in hybrid and all-electric vehicles is a growing range of pure electric and hybrid models that are smooth to drive and cheap to run. Ultimately there is only one choice to make: it’s time to get behind the wheel with electric.
A hands-on design engineer, David is responsible for driving the latest design, engineering and software developments. His experience ranges from hi-fi product design to the programme management of complex financial service software. When he’s not talking about firmware updates, tooling or road maps you’ll see him running in Hampstead Heath or ferrying his kids to school on his electric bicycle.