The end of benefit in kind tax on electric cars
Posted on 20th February 2020
A recent announcement by HM Treasury confirms that pure electric vehicles will no longer pay benefit-in-kind (BIK) tax from April 6, 2020. Instead, they will pay tax according to two new BIK tables, with some pure electric vehicles paying no benefit-in-kind taxes whatsoever.
For electric company cars registered before April 6 2020, companies will pay rates reduced by 2%. Firms that use pure electric vehicles (with zero tailpipe emissions) will see their tax rates fall to 0%, paying no benefit-in-kind taxation to HMRC at all. For company vehicles registered after April 6 2020, a 0% tax rate applies for cars that generate between 1 and 50g/km of CO2, and electric vehicles with more than a 130-mile range.
The news for electric-vehicle-owning businesses, however, is not so rosy looking ahead to 2021/22 and 2022/23 tax years for those who registered pure electric vehicles before April 6 2020. The new BIK tables show that companies will pay 1 per cent tax in 2021/22 and 2% in 2022/2023 - still low compared to petrol and diesel.
Company cars registered before April 6 2020 that produce between 1 and 50g/km CO2 emissions will continue to pay the same 2% rate in 2021/22 and 2022/23 as they have in the current tax year.
The government says that by the 2023/2024 the BIK tax tables for companies will once again have been realigned.
Why create these new BIK tables?
The government is keen to promote the use of electric vehicles among businesses and get electric car production to scale so that prices come down to the point where they become more affordable. The lower taxes on business electric cars provide relief for companies that want to use modes of transportation that reduce their carbon emissions.
HM Treasury says that the new BIK tables provide clarity for how taxes will vary over the coming years, allowing businesses to plan their transition to zero-emission fleets. In the future, the government intends to announce BIK percentages at least two years ahead of their implementation, boosting tax planning and reducing uncertainty.
The announced BIK rates, however, are not set in stone. HMRC has said that it will revise the percentages in the coming fiscal years, determining whether or not they are suitable for the current economic climate. All rates beyond 2022/23 remain under review, implying that alignment of BIK tables could take longer than four financial years.
Thus far, the lack of tax clarity on electric vehicles has hampered private sector uptake. Head of Fleet Consultancy at Lex Autolease Ashley Barnett said that companies needed consistency from the government on how much tax they would have to pay in coming years.
The move to reduce BIK to 0% on pure electric vehicles from April 6 2020, and then increasing from 1 to 2% in the following tax years is a popular move by many in the industry.
Ushering In the electric car revolution
The government wants to electrify the British commercial vehicle fleet and is pushing hard in 2020 and onward to make it a reality. Therefore, besides updating the BIK tables to make pure electric vehicles more attractive both today and in the following years, the government is also calling for all public charge points in the UK to begin accepting cards, improving accessibility. It also wants residential builders to include electric vehicle charge points in all new homes so that owners do not have to install them after the fact.
Companies across a range of industries have welcomed the recent moves by the UK Government to reduce tax burdens on company vehicle fleets. Alphabet (parent company of Google) Chief Commercial Officer Simon Carr said that the new rules recognised the importance that the private sector will play in moving towards full electrification of road-based transportation. He continued to say that the reduction to 0% BIK rates for pure electric vehicles in 2020/21, rising to 1% and then 2% over the following years, would lead to a surge in the electric vehicle industry.
The government appears to be listening to the voice of businesses and responding to the demand for lower taxes on electric vehicles. With BIK rates for vehicles that produce more than 51g/km CO2 ranging from 15 to 37%, the new standards for high-mileage electric vehicles provide a compelling reason for companies to go out and buy them.
Next steps
If you are considering buying or upgrading a company car, but you're not sure whether to go electric or stick with the more traditional petrol or diesel models, why not give us a call or drop us an email? We’ll be more than happy to help advise you, taking your individual circumstances into consideration. We’ll explain your options in simple, understandable terms, and help you come to an informed decision based on your specific situation.
Written by
Nicola J Sorrell -
Effective Accounting
Founder | Xero Champion | IR35 Expert
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