There are around 800,000 company car drivers in the UK, and the government is acutely aware of the need to steer them towards the cleanest, most efficient vehicles.
Tax incentives for cars with lower CO2 emissions were introduced back in 2002, fuelling the subsequent dash for diesel and creating an early market for plug-in hybrids a decade later. Following a recent overhaul, that system has made company car schemes among the most affordable ways to drive an electric vehicle.
How do you calculate company car tax for an electric vehicle?
If your employer provides you with a car that’s available for private journeys, it’s classed as a benefit-in-kind (BIK) – a term that applies to a broad spectrum of workplace perks – and taxed out of your monthly pay packet. Depending on the car you choose, this can be cheaper than buying or leasing privately.
The amount you pay is based on the vehicle’s taxable value. This is a percentage of its list (or P11D) price, which gets progressively larger for cars with higher CO2 emissions. Broadly speaking, the cheapest and/or lowest-CO2 vehicles attract the least tax.
Ultra-low tax bands for EVs – which are rated at 0g/km CO2 – were reintroduced in April 2020, and the taxable value for these cars is currently frozen at 2% of the list price until April 2025. The taxable value for these cars is just 1% of the list price until April 2022, then 2% for the following three financial years. Bearing in mind that even the most efficient petrol, diesel or self-charging hybrid cars fall into the 25% or higher tax bands, it’s an incentive that easily outweighs an EV's higher list price.
|Vehicle||Type||P11d||BIK rate||Taxable value|
|Peugeot e-208 Allure||Electric||£31,440||2%||£628.80|
|Peugeot 208 1.2 PureTech 100 Allure||Petrol||£21,345||28%||£5,976.60|
|BMW i4 eDrive40 M Sport||Electric||£53,350||2%||£1067.00|
|BMW 320d M Sport Auto||Diesel||£39,440||29%||£11,681.20|
Annual BIK tax payments are a percentage of that taxable value and depend on your income tax rate. There are three bands in England, Wales and Northern Ireland (20%, 40% and 45%), while Scotland has a five-tier system between 19% and 46%. A 20% taxpayer, for example, would pay 20% of the vehicle’s taxable value per year, split into 12 monthly instalments.
|Vehicle||Type||20% Taxpayer BiK||40% Taxpayer BiK|
|Peugeot e-208 Allure||Electric||£10.48||£20.96|
|Peugeot 208 1.2 PureTech 100 Allure||Petrol||£99.61||£199.22|
|BMW i4 eDrive40 M Sport||Electric||£17.78||£35.57|
|BMW 320d M Sport Auto||Diesel||£194.69||£389.37|
What incentives are available for businesses to go electric?