Will I Pay Company Tax on an Electric Car?

Electric cars are fast becoming the vehicle of choice for those who want to reduce their impact on the environment. But, if you’re a company-car driver and choose an electric car, this change could have a positive impact on your pocket, too.

How Do Company-Car Tax Rates Work?

Company-car tax is designed to encourage business drivers to choose models with lower CO2 emissions, so the amount of tax payable rises on a sliding scale in line with emissions.

This scale has meant that diesel cars have historically been the most tax-efficient option for company-car drivers. However, concerns about particulates and NOx mean that diesel cars are now subject to a 4% surcharge, unless they meet the latest RDE standards. This makes hybrids, electric cars and even some petrol models a more attractive option. And electric cars are set to become the most attractive option of the lot.

What’s Changing?

From April 2020, company-car drivers who choose an emissions-free electric fleet model registered from 6 April 2020 will pay no benefit-in-kind (BIK) tax for the year 2020-2021. This initiative is part of the government’s drive to encourage motorists to switch to green vehicles, which currently account for almost six in ten new-car registrations in the UK. It’s the first time ever that a company-car driver will pay no BIK tax at all.

What Happens in 2021?

After the initial year of paying no BIK tax, company-car drivers of electric models can expect to pay 1% from April 2021 and 2% from April 2022.

Even at 2%, this is a significant saving compared to those who don’t choose to go green, who could pay as much as 37% BIK on a model with CO2 emissions of 170g/km.

Can I Choose a Hybrid Car?

Yes, it’s not only pure-electric vehicles that will be benefit from reduced BIK tax in 2020. You could also get a tax break if you opt for a plug-in hybrid car, as long as it meets certain criteria in terms of its CO2 emissions and the range it can travel as a pure-electric vehicle. The rates won’t be as generous as they are for pure-electric cars, but they are still far lower than cars powered solely by a combustion engine.