Now could be the best time to switch to an electric company car and benefit from reduced capital allowances and Benefit in Kind (BiK) tax as well as lower running costs.
27th October 2021
More than ever the government is incentivising companies to consider the use of electric cars, with considerable tax benefits, funding and sustainability initiatives currently on offer. No longer is the argument for ditching fuel solely about sustainability, today there are real financial savings to be made. With the next few years of tax benefits locked in and fuel prices on the increase, now could be the optimum time to switch to electric. In this article we discuss the potential savings to be made by switching to electric in:
- Vehicle Excise Duty
- Benefit in Kind tax
- Capital Allowances
Vehicle Excise Dury (VED) Savings
Vehicle Excise Duty, known as VED, is a tax levied by the government on every vehicle on UK public roads. Previously known as “road tax”, VED is now taxed on the vehicle itself, with the revenue generated used for the building and upkeep of the UK road system.
Changes to the system in April 2020 meant significant differences for new car buyers, when the methodology changed from using NEDC emissions testing as the basis for tier calculation to the new WLTP system, which aims to be a more realistic and fair assessment of fuel consumption, emissions output and driving range.
The previous system will still apply to any vehicles registered before 1st April 2017. For any vehicle registered prior to 1st March 2001 it is the engine size that will dictate the charge. For any cars registered between 1st March 2000 and 1st April 2017 then it is the emissions that count.
Below we have shown the government calculation tables showing the various charges dependent on the age and characteristics of the vehicle. Full and current details can be found here https://www.gov.uk/vehicle-tax-rate-tables/rates-for-cars-and-light-goods-vehicles-registered-before-1-march-2001
With the 2020 changes also came the removal of the “expensive car tax” for zero emissions vehicles. This charge (currently £335 pa) is levied for the first 2-5 years on any car or motorhome with a list price of over £40,000 from the date of registration.
Cars registered on or before 1st April 2017 1st year VED payment
| CO2 emissions | Diesel cars (TC49) that meet the RDE2 standard and petrol cars (TC48) | All other diesel cars (TC49) | Alternative fuel cars (TC59) |
| 0g/km | £0 | £0 | £0 |
| 1 to 50g/km | £10 | £25 | £0 |
| 51 to 75g/km | £25 | £115 | £15 |
| 76 to 90g/km | £115 | £140 | £105 |
| 91 to 100g/km | £140 | £160 | £130 |
| 101 to 110g/km | £160 | £180 | £150 |
| 111 to 130g/km | £180 | £220 | £170 |
| 131 to 150g/km | £220 | £555 | £210 |
| 151 to 170g/km | £555 | £895 | £545 |
| 171 to 190g/km | £895 | £1,345 | £885 |
| 191 to 225g/km | £1,345 | £1,910 | £1,335 |
| 226 to 255g/km | £1,910 | £2,245 | £1,900 |
| Over 255g/km | £2,245 | £2,245 | £2,235 |
n.b. Any diesel cars not meeting the Real Driving Emissions 2 (RDE2) standard for nitrogen oxide emissions will pay a higher rate.
Cars registered on or before 1st April 2017 2nd year onwards VED payment
The Treasury carried out an analysis of the impacts and found that those households in the highest 20% of incomes will contribute 40 times more than those in the lowest 20% bracket. However, there has been some criticism that younger and lesser-paid workers will end up worse off than others.
| Fuel type | Single 12 month payment | Single 12 month payment by Direct Debit | Total of 12 monthly payments by Direct Debit | Single 6 month payment | Single 6 month payment by Direct Debit |
| Petrol or diesel | £155 | £155 | £162.75 | £85.25 | £81.38 |
| Electric | £0 | N/A | N/A | £0 | N/A |
| Alternative | £145 | £145 | £152.25 | £79.75 | £76.13 |
Cars registered between 1 March 2001 and 31 March 2017 VED Payments (rate calculated on fuel type and CO2 emissions)
Petrol car (TC48) and diesel cars (TC49)
| Band and CO2 emission | Single 12 month payment | Single 12 month payment by Direct Debit | Total of 12 monthly instalments by Direct Debit | Single 6 month payment | Single 6 month payment by Direct Debit |
| A: Up to 100g/km | £0 | £0 | N/A | N/A | N/A |
| B: 101 to 110g/km | £20 | £20 | £21 | N/A | N/A |
| C: 111 to 120g/km | £30 | £30 | £31.50 | N/A | N/A |
| D: 121 to 130g/km | £130 | £130 | £136.50 | £71.50 | £68.25 |
| E: 131 to 140g/km | £155 | £155 | £162.75 | £85.25 | £81.38 |
| F: 141 to 150g/km | £170 | £170 | £178.50 | £93.50 | £89.25 |
| G: 151 to 165g/km | £210 | £210 | £220.50 | £115.50 | £110.25 |
| H: 166 to 175g/km | £250 | £250 | £262.50 | £137.50 | £131.25 |
| I: 176 to 185g/km | £275 | £275 | £288.75 | £151.25 | £144.38 |
| J: 186 to 200g/km | £315 | £315 | £330.75 | £173.25 | £165.38 |
| K*: 201 to 225g/km | £340 | £340 | £357 | £187 | £178.50 |
| L: 226 to 255g/km | £585 | £585 | £614.25 | £321.75 | £307.13 |
| M: Over 255g/km | £600 | £600 | £630 | £330 | £315 |
*Includes cars with a CO2 figure over 225g/km but were registered before 23 March 2006.
Alternative fuel cars (TC59)
| Band and CO2 emission | Single 12 month payment | Single 12 month payment by Direct Debit | Total of 12 monthly instalments by Direct Debit | Single 6 month payment | Single 6 month payment by Direct Debit |
| A: Up to 100g/km | £0 | N/A | N/A | N/A | N/A |
| B: 101 to 110g/km | £10 | £10 | £10.50 | N/A | N/A |
| C: 111 to 120g/km | £20 | £20 | £21 | N/A | N/A |
| D: 121 to 130g/km | £120 | £120 | £126 | £66 | £63 |
| E: 131 to 140g/km | £145 | £145 | £152.25 | £79.75 | £76.13 |
| F: 141 to 150g/km | £160 | £160 | £168 | £88 | £84 |
| G: 151 to 165g/km | £200 | £200 | £210 | £110 | £105 |
| H: 166 to 175g/km | £240 | £240 | £252 | £132 | £126 |
| I: 176 to 185g/km | £265 | £265 | £278.25 | £145.75 | £139.13 |
| J: 186 to 200g/km | £305 | £305 | £320.25 | £167.75 | £160.13 |
| K*: 201 to 225g/km | £330 | £330 | £346.50 | £181.50 | £173.25 |
| L: 226 to 255g/km | £575 | £575 | £603.75 | £316.25 | £301.88 |
| M: Over 255g/km | £590 | £590 | £619.50 | £324.50 | £309.75 |
*Includes cars with a CO2 figure over 225g/km but were registered before 23 March 2006.
Cars and light goods vehicles registered before 1 March 2001 VED rates (based on engine size)
Private or light goods (TC11)
| Engine size (cc) | Single 12 month payment | Single 12 month payment by Direct Debit | Total of 12 monthly instalments by Direct Debit | Single 6 month payment | Single 6 month payment by Direct Debit |
| Not over 1549 | £170 | £170 | £178.50 | £93.50 | £89.25 |
| Over 1549 | £280 | £280 | £294 | £154 | £147 |
Please speak to one of our expert team by clicking here.
Reduced Benefit in Kind Rate
At the beginning of 2020/2021 the government reduced the BiK (Benefit in Kind) tax rate to 0% for zero emissions electric vehicles. In 2021/2022 this rate will move to 1% and in 2022/2023 the rate will be 2%. The government has committed to freezing the 2022/2023 rate for a further 2 years after this. Although leasing charges will still need to be paid, the main advantage is that the driver would be liable for little to no BiK for the next 3 years.
BiK company car tax is calculated based on the P11D value of the vehicle (based on vehicle list price, any extras, delivery fees and VAT), its CO2 tailpipe emissions and the employee’s income tax band. Think of it as a tax on the “benefit in kind” that an employee receives in having a car provided to them that they may use for both business and personal journeys.
Compare the Bik rates of low vs. high CO2 emission vehicles in the following table, which shows the applicable % BiK rates for the next 3 tax years.
BiK Rates for Cars registered before 6 April 2020
| CO2 (g/km) | Electric range (miles) | BiK rate 2020-21 (%) | BiK rate 2021-22 (%) | BiK rate 2022-23 (%) | BiK rate 2023/24 (%) | BiK rate 2024/25 (%) |
| 0 | N/A | 0 | 1 | 2 | 2 | 2 |
| 1-50 | >130 | 2 | 2 | 2 | 2 | 2 |
| 1-50 | 70-129 | 5 | 5 | 5 | 5 | 5 |
| 1-50 | 40-69 | 8 | 8 | 8 | 8 | 8 |
| 1-50 | 30-39 | 12 | 12 | 12 | 12 | 12 |
| 1-50 | <30 | 14 | 14 | 14 | 14 | 14 |
| 51-54 | 15 | 15 | 15 | 14 | 14 | |
| 55-59 | 16 | 16 | 16 | 16 | 16 | |
| 60-64 | 17 | 17 | 17 | 17 | 17 | |
| 65-69 | 18 | 18 | 18 | 18 | 18 | |
| 70-74 | 19 | 19 | 19 | 19 | 19 | |
| 75-79 | 20 | 20 | 20 | 20 | 20 | |
| 80-84 | 21 | 21 | 21 | 21 | 21 | |
| 85-89 | 22 | 22 | 22 | 22 | 22 | |
| 90-94 | 23 | 23 | 23 | 23 | 23 | |
| 95-99 | 24 | 24 | 24 | 24 | 24 | |
| 100-104 | 25 | 25 | 25 | 25 | 25 | |
| 105-109 | 26 | 26 | 26 | 26 | 26 | |
| 110-114 | 27 | 27 | 27 | 27 | 27 | |
| 115-119 | 28 | 28 | 28 | 28 | 28 | |
| 120-124 | 29 | 29 | 29 | 29 | 29 | |
| 125-129 | 30 | 30 | 30 | 30 | 30 | |
| 130-134 | 31 | 31 | 31 | 31 | 31 | |
| 135-139 | 32 | 32 | 32 | 32 | 32 | |
| 140-144 | 33 | 33 | 33 | 33 | 33 | |
| 145-149 | 34 | 34 | 34 | 34 | 34 | |
| 150-154 | 35 | 35 | 35 | 35 | 35 | |
| 155-159 | 36 | 36 | 36 | 36 | 36 | |
| 160+ | 37 | 37 | 37 | 37 | 37 |
BiK Rates for Cars registered from 6 April 2020
| CO2 (g/km) | Electric range (miles) | Bik Rate 2020-21 (%) | BiK Rate 2021-22 (%) | BiK Rate 2022-23 (%) | BiK Rate 2023/24 (%) | BiK Rate 2024/25 (%) |
| 0 | N/A | 0 | 1 | 2 | 2 | 2 |
| 1-50 | >130 | 0 | 1 | 2 | 2 | 2 |
| 1-50 | 70-129 | 3 | 4 | 5 | 5 | 5 |
| 1-50 | 40-69 | 6 | 7 | 8 | 8 | 8 |
| 1-50 | 30-39 | 10 | 11 | 12 | 12 | 12 |
| 1-50 | <30 | 12 | 13 | 14 | 14 | 14 |
| 51-54 | 13 | 14 | 15 | 15 | 15 | |
| 55-59 | 14 | 15 | 16 | 16 | 16 | |
| 60-64 | 15 | 16 | 17 | 17 | 17 | |
| 65-69 | 16 | 17 | 18 | 18 | 18 | |
| 70-74 | 17 | 18 | 19 | 19 | 19 | |
| 75-79 | 18 | 19 | 20 | 20 | 20 | |
| 80-84 | 19 | 20 | 21 | 21 | 21 | |
| 85-89 | 20 | 21 | 22 | 22 | 22 | |
| 90-94 | 21 | 22 | 23 | 23 | 23 | |
| 95-99 | 22 | 23 | 24 | 24 | 24 | |
| 100-104 | 23 | 24 | 25 | 25 | 25 | |
| 105-109 | 24 | 25 | 26 | 26 | 26 | |
| 110-114 | 25 | 26 | 27 | 27 | 27 | |
| 115-119 | 26 | 27 | 28 | 27 | 27 | |
| 120-124 | 27 | 28 | 29 | 29 | 29 | |
| 125-129 | 28 | 29 | 30 | 30 | 30 | |
| 130-134 | 29 | 30 | 31 | 31 | 31 | |
| 135-139 | 30 | 31 | 32 | 32 | 32 | |
| 140-144 | 31 | 32 | 33 | 33 | 33 | |
| 145-149 | 32 | 33 | 34 | 34 | 34 | |
| 150-154 | 33 | 34 | 35 | 35 | 35 | |
| 155-159 | 34 | 35 | 36 | 36 | 36 | |
| 160-164 | 35 | 36 | 37 | 37 | 37 | |
| 165-169 | 36 | 37 | 37 | 37 | 37 | |
| 170+ | 37 | 37 | 37 | 37 | 37 |
To put this into real terms, in 2021/2022 tax year and for a 40% rate tax payer, a Tesla Model S Long range (Electric car) will cost £27.98 in BiK per month whereas a Mercedes S 350d AMG Line Premium (Equivalent non-electric car) will cost £1,039.39 per month. *
(*based on available list prices at the time of calculation)
Hybrid vehicles are included within these calculations with the exact rate depending on their emissions and how far they can be driven in electric mode. Those covering between 30-39 miles on electricity alone would incur a 10% BiK rate for example.
These rates are applicable to high-performance, luxury cars also, so makes such as Tesla, Jaguar and BMW, meaning previously inaccessible cars could well become viable options for many.
Please note, tax for vans is calculated differently.
Increased Capital Allowances
The government has given 100% first year Capital Allowances for any var with CO2 emissions of less than 50g/km.
On a car costing around £45,000 this could amount to a tax relief of £8,550 in the first year in line with the current corporation tax rate of 19%.
For cars that do not qualify (CO2 emissions 50g/km), capital allowances are received over a number of years on a reducing balance basis and so the 100% allowance provides tax relief at a far earlier point in time.
Running Costs
The rising cost in fuel prices is another valid reason to consider change to an electric car. Fuel duty currently sits at around 58p per litre. This charge is not applicable when using an electric energy source.
In addition to this, the government has incentivised employers to provide charging facilities for vehicles by exemption employer-provided electricity from being taxed as a Benefit in Kind. To receive this relief the following conditions must be met:
- There must be a dedicated charge point that is at or near the place of work
- The facility must be available to all employees/all employees at a particular location.
Through the Workplace Charging Scheme (WCS) companies can furthermore apply for funding for up to £350 on a maximum of 40 electric charging points using approved devices and installers.
Those installing electric charging points at home can benefit from the Electric Vehicle Homecharge Scheme (EVHS), which offers up to £350 off the cost of buying and installing an electric charge point.
Considerations
There are some further considerations to bear in mind for the switch to electric vehicle.
Journey Planning – this may still need more consideration than with a fuel or hybrid car. Technology and journey lengths have improved greatly over recent years, but there are still limits to how far you can travel before needing to charge up.
Cost of Car – the prices of zero emissions vehicles are still often greater than traditional fuel type. Hopefully the gap will lesson over time but, for the time being, it may be that the initial outlay is prohibitive.
Changing Benefits – at the moment the government is heavily incentivising both companies and individuals to take on electric cars. Moving forward these measures – or the metrics used to calculate them – cannot be guaranteed.
For advice on company car potential tax savings and benefits, talk to your TTRB client team today.
All information correct at time of going to print/live and on the best knowledge and understanding of the author at the time. This article is for general information only and does not constitute financial advice or recommendations for individual circumstances. No responsibility is taken for any actions taken on the base of the information within this article.
