Navigating Benefit-in-Kind (BIK) on Electric Cars

A Guide for Fleet Managers

As a fleet manager, you're tasked with making decisions that not only keep your fleet efficient but also cost-effective. One of the most pressing issues in fleet management today is understanding the financial impact of Benefit-in-Kind (BIK) taxation on electric vehicles (EVs). With sustainability targets and rising fuel costs, many companies are transitioning to electric fleets, and BIK plays a critical role in determining the overall cost-effectiveness of that shift.

Here's what you need to know about BIK on electric cars and how to make the most informed decisions for your fleet.

What is Benefit-in-Kind (BIK) Tax?

BIK tax is a charge levied on employees who receive benefits or perks outside their regular salary, such as company cars. It applies to company vehicles provided for personal use, including commuting. The tax is calculated based on the vehicle's list price (P11D value), its CO2 emissions, and the BIK rate for that vehicle.

Why Electric Cars Offer BIK Advantages

In an effort to promote cleaner transport, the UK government has incentivised the adoption of electric vehicles by offering reduced BIK rates. For fully electric vehicles (EVs), the BIK on electric cars has been significantly lower than for traditional petrol or diesel cars, and it remains an attractive option for both employers and employees.

As of the 2023/24 tax year, fully electric cars attract a BIK rate of 2%, which is remarkably low compared to internal combustion engine (ICE) vehicles, which can see rates climb as high as 37%. This difference can lead to significant tax savings for employees and operational cost reductions for your company.

How BIK is Calculated for Electric Vehicles

BIK on electric cars is calculated by multiplying the car’s P11D value by the applicable BIK rate (2%) and the employee’s income tax band (either 20% or 40% for most people). Here's an example:

Car P11D value: £40,000

BIK rate for EVs (2023/24): 2%

Taxable amount: £40,000 x 2% = £800

Employee's tax rate: 20%

Annual BIK cost to employee: £800 x 20% = £160

In contrast, an ICE vehicle with the same P11D value could have a BIK rate of up to 25%, dramatically increasing the taxable benefit and the cost to the employee.

BIK Rates for Plug-in Hybrid Electric Vehicles (PHEVs)

If you're not ready to make a full transition to electric vehicles, plug-in hybrid electric vehicles (PHEVs) also offer BIK savings. However, the BIK rate on PHEVs is higher than for fully electric cars and is dependent on their CO2 emissions and electric-only range. The lower the emissions and the greater the range, the lower the BIK rate.

Planning for the Future: BIK Rate Increases

The government has announced that BIK on electric cars will gradually increase from 2% to 5% by 2027/28. Although this represents a rise, it is still significantly lower than the rates applied to petrol and diesel vehicles. This phased increase allows fleet managers to plan ahead, considering the long-term cost implications of EV adoption.

Other Benefits of EVs for Your Fleet

Beyond the BIK tax savings, there are other financial and environmental benefits to incorporating EVs into your fleet:

Lower fuel costs: Charging electric cars is generally cheaper than refuelling with petrol or diesel.

Reduced maintenance: EVs have fewer moving parts, meaning lower maintenance costs over time.

Government incentives: There are grants and subsidies available for both electric vehicle purchases and the installation of charging infrastructure.

Sustainability targets: Moving to an electric fleet helps meet corporate sustainability goals and reduce the company’s carbon footprint.

Reduced fleet insurance: Due to their enhanced safety features and lower overall risk profile. Many electric vehicles (EVs) are equipped with advanced driver-assistance systems (ADAS), such as automatic emergency braking, lane-keeping assistance, and collision avoidance technologies, which reduce the likelihood of accidents. As a result, insurers often view EVs as lower risk, leading to potentially reduced fleet insurance quotes for fleet managers.

Steps to Take When Introducing EVs to Your Fleet

Evaluate your fleet needs: Determine which vehicles in your fleet could be replaced by electric alternatives, keeping in mind factors like range, charging infrastructure, and usage patterns.

Assess total cost of ownership (TCO): Consider not just the purchase price but also the operational costs, including fuel, maintenance, and tax savings through BIK.

Communicate benefits to employees: Ensure employees understand how they can benefit from lower BIK rates and overall savings by opting for electric vehicles as their company car.

Plan for charging infrastructure: Whether at your office or employees' homes, adequate charging infrastructure is key to making the transition to EVs seamless.

Stay informed: As BIK rates and government policies evolve, keeping up to date will help you make the best decisions for your fleet.

Conclusion

With lower BIK rates and a growing focus on sustainability, electric vehicles offer significant financial advantages for both employers and employees. As a fleet manager, understanding the BIK structure and its implications on your fleet can help you make informed decisions that benefit your company, your employees, and the environment. While BIK rates for EVs are set to increase gradually, the long-term savings and sustainability benefits make the transition to electric an attractive proposition for any modern fleet.