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    Company car tax on electric cars

    With car tax on electric cars due to rise to 2% in the new financial year, here’s everything you need to know about company car tax on electric cars.

    Understanding company car tax on electric cars

    Electric cars may be exempt from Vehicle Excise Duty (VED) but if you’re driving a fully electric vehicle as a company car, you’ll be liable to pay Benefit-in-Kind tax (referred to as BIK for short).

    BIK tax is a tax on any benefits your employees receive in addition to their salary and it applies to any company vehicles your employees also drive for personal use. So, if your employees are driving a company-owned electric car to and from work, or making other non-work related journeys, both they and you will have to pay BIK company car tax to the government.

    How is electric company car tax calculated?

    How company car tax on electric cars is calculated depends on aspects of the vehicle, as well as if you’re the fleet/electric vehicle owner, or the employee who drives the vehicle. In other words, the amount of car tax payable on company-owned electric vehicles may differ from car to car and employee to employee.

    As the business owner, the first thing you’ll need in order to calculate your electric company car tax is the vehicle’s P11D value or list price. For the purpose of calculating car tax, the P11D value should include VAT but omit the first year’s vehicle tax and registration fee costs.

    The second thing you’ll need to know about your electric vehicle in order to calculate the company car tax owed is its CO2 emissions. This is the amount of CO2 that enters the atmosphere through the vehicle’s exhaust pipe (also sometimes referred to as tank to wheel CO2).

    You can find out the CO2 emissions for any company owned vehicles in your fleet by using the free Car fuel and CO2 emissions data checker on the government website.

    If your vehicle’s CO2 emissions fall within the ultra-low tax band, rated at 0g/km CO2, the BIK or taxable value you’ll be liable for is currently set at just 1% of the vehicle’s list price, rising to 2% for the 2022/2023 tax year.

    This means if your electric vehicle’s P11D value is £30,000 in the 2022/2023 tax year, you’ll need to pay £600 in electric company car tax (2% of £30,000).

    How is company car tax on electric cars calculated for employees?

    Employees seeking to work out their annual electric company car tax contribution should apply the same calculation as above, but once you've multiplied your EV’s P11D value by the taxable value for the financial year, you then need to multiply that figure by how much tax you pay.

    To put it in simpler terms, an employee’s company car tax on electric cars is calculated using this formula:

    P11D value x taxable value x the percentage of tax you pay on your earnings.

    So, if the P11D is £30,000, the taxable value is 2%, and you happen to be a 20% tax payer, your electric company car tax contribution would be £120 (£30,000 x 2% x 20%).  

    Why is tax on electric vehicles rising?

    The increase from 1% to 2% on electric vehicle car tax for the tax year 2022/2023 is in line with the government’s roadmap to phase out the sale of new diesel vehicles by 2030, and hybrid models by 2035. This is part of a wider plan to cut carbon emissions to net 0 by 2050.

    You have to remember, until the current tax year, there was no taxable value placed on electric vehicles by the government whatsoever. Even with the rise from 1% to 2% - which, incidentally, the government has committed to locking in at least until 2025, the car tax bill for a company owned electric vehicle remains much lower than a comparable petrol or diesel car.

    This is in part because non-electric vehicles are subject to both VED and fuel duty, and many drivers of petrol or diesel cars also have to pay a daily charge for travelling within low emission zones, such as those in effect in parts of Greater London, Cardiff, and Manchester.

    When you also bear in mind that the monthly charging costs of an electric vehicle are significantly lower than filling a tank with petrol or diesel, choosing to invest in company-owned electric vehicles offers many more opportunities for long-term cost savings across a vehicle’s lifespan. 

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