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The push to reduce carbon emissions in the UK has prompted the government to introduce a wide variety of incentives. Subsequently, company electric cars represent a tax-efficient tool. Having said that, the tax efficiency of an electric company car is not that straightforward. The vehicles have limitations so are not suitable for everyone and tax brackets are appointed in relation to the EV range and carbon emissions.
Thanks to the improvement of electric cars in recent years, Electric Vehicles (EVs) are an extremely attractive tax-efficient proposition. You might want to take advantage of the benefits whilst they last. Having said that, there are certain criteria you need to take into consideration.
If you receive a company car as a Benefit-In-Kind from your place of work and also use the car in your private life, you are obligated to pay personal tax liabilities.
You must submit a self-assessment tax return to HMRC. You can either do this yourself online or instruct a qualified accountant to prepare and submit the form on your behalf.
In April 2022, the tax liability on a company electric car for the tax year 2022/23 will be 2%. This figure is up from 1% for the previous tax year but still represents an extremely low tax payment considering most company car owners would ordinarily pay 27% for a petrol-run vehicle and 29% for diesel.
The amount of tax you pay on a company car is determined by the value of the car, the amount of CO2 emissions, and your tax bracket.
A mock calculation published by Auto Express reveals that a company car valued at £30,000 that is subject to a 20 per cent tax liability will cost £1620 in personal tax liabilities per annum. Using the same metrics, the annual tax liability for a diesel car would be £1,740.
Hybrid cars with a 29-mile range and a carbon emission of 37g/km are still subject to a 14% tax liability which would mean a payment of £840 would be made to HMRC. A fully electric car assessed by the same metrics would only impose a tax liability of two per cent which would slash your tax liability to just £120.
If you want to know how much tax you are likely to pay on a company electric car, use the HM Revenue & Customs company car and car fuel benefit calculator.
In short, tax liabilities are calculated as follows:
Personal tax rate: The rate of tax you pay in relation to your salary. This is dedicated to the BIK rate.
BIK rate: This is the rate that has been assigned to a particular vehicle minus your personal tax rate.
BIK rates are based on the World Harmonised Light Vehicle Test Procedure (WLTP). This is an emissions assessment that determines the CO2 output of a particular vehicle. Vehicles with a higher rate of CO2 emissions are placed in a higher tax bracket.