Company car tax: can electric cars save your business and your employees money?
Thinking of switching your company cars to electric vehicles? Now’s a great time to lead the charge and get your team on the road in electric cars.
Choosing to offer electric cars to your employees sends a message that your company is serious about fighting climate change. Helping your team switch to EVs will save many tonnes of carbon each year, proving your commitment to sustainability. Potential team members will be more likely to join your business and stay with you, too.
Electric cars are also cheaper to run than petrol or diesel cars, saving your team money in the long run. And with company tax breaks for electric cars, salary sacrifice schemes are a great and easy way to get on the road in an electric car.
With rates changing and complicated formulas, it can be hard to get your head around company car tax on electric cars. But don’t worry, we’ve got your back. Read on to find out how much tax your business and your team will have to pay on company electric cars. Plus, we’ll explain how to calculate Benefit in Kind (aka company car tax).
How much is company car tax on electric cars?
Benefit in Kind, or company car tax, is currently frozen at 2%, for employees until 2025. From then, it will increase by 1% each year until 2028.
There are two kinds of company car tax on electric company cars. The employer pays Class 1A National Insurance Contributions. And the employee pays Benefit in Kind tax. Because both are partly calculated based on the car’s CO₂ emissions, they’re much lower for electric cars than for petrol and diesel ones.
Employees pay their company car tax as a Benefit in Kind (BiK), which is deducted via payroll when calculating net pay.
The BiK rate is set by the government based on the car's carbon emissions, so the more pollution, the higher the rate. While low emission cars are at 2%, drivers of big polluters can pay up to 37%. So offering EVs through a salary sacrifice scheme (which is a benefit that uses the BiK) can save your team big money on their tax bill. It’s worth noting the rate is currently fixed until April 2025 at 2%. After then, it'll raise by 1% each year until 2028.
How is the Benefit in Kind calculated?
The exact amount of each Benefit in Kind payment depends on how much the driver earns as well as a couple of other things, and comes part of your payslip - no need to calculate this yourself!
To calculate how much BiK tax you’ll pay, you need to know the BiK percentage, P11D value of the car (the manufacturer’s recommended retail price on the day before it is made available, including VAT and delivery), and your income tax bracket.
The calculation then goes like this:
P11D value of the car x BiK tax rate x your income tax bracket
As an example, the BiK payment for an electric car would look like this:
P11D value of £20,000 x 2% BiK rate x 20% tax bracket = £80 BiK per year.
In contrast, a petrol car of the same value would be:
P11D value of £20,000 x average 30% BiK rate x 20% tax bracket = £1,200 BiK per year.
£80 vs £1,200 is a massive saving. Just think how happy your team will be to keep hold of their extra cash. If you want to find out more about BiK for electric cars, check out our guide.
Is the Benefit in Kind rate the same for plug-in hybrid electric vehicles and hybrids?
No. Drivers of plug-in hybrid EVs and hybrids pay less BiK than petrol or diesel drivers, but more than zero emission electric cars.
The highest BiK rate for a plug-in hybrid electric vehicle is 14% (many models are taxed at a much lower rate), depending on how far the car can go using electric power, its “zero-emissions” range or it’s CO2 emissions if not within the zero emission range. Hybrid car owners also enjoy a slightly reduced BiK rate which works out to about 2% less BiK than comparable petrol or diesel cars.
Are electric cars good as company cars?
Electric cars make great company cars and there are so many options to suit all businesses and employees. Choose from a Mini or a Mercedes, a Porsche or a Jaguar, and even more. There’s an EV for everyone. Take a look at our full range of electric cars to see for yourself.
Switching to electric company cars shows your commitment to fighting climate change. You’ll be leading the charge, arming your team with EVs and saving 1.5 tonnes of CO2 per person over a year. Plus, offering such a sustainable and sought-after employee benefit will make it easier to attract new employees and encourage them to stick around.
It’s easy to charge electric cars, with an at-home charging point or with public chargers. There are now over 50,000 public charging points across the UK, and
our EV salary sacrifice comes with everything you need to get going in your new EV.
Your team will love their company EVs as they’re much more affordable to run than petrol or diesel cars. With tax breaks and fuel costs taken into account, your people could save up to 40% when they switch to an electric vehicle. All while saving the planet, too.
Choosing electric vehicles for your company cars is easy. We’ll do all the heavy lifting and admin, leaving you and your team to do the fun stuff (like trying out and choosing your cars).
Your team get the whole package: car, charger, insurance (if you choose to add this to your package), servicing and more, so you’re ready to drive right away. And there’s no upfront fee when you get started on our EV salary sacrifice scheme — either for your company or your team.
Hit the road in an electric car for big savings when it comes to cash and carbon, doing your team and the environment a huge favour.