How much company car tax will I save with an electric car?

Company car drivers account for one in two new car sales in Britain. Fleet vehicles are generally more expensive than a typical privately-bought car. Then, after three years of mile-munching, they are sold second-hand at a good price.

The government has joined the dots and decided that one of the quickest ways to speed up electric car rollout in Britain is incentivising company car drivers to make the switch.

Here, we outline just how much EV fleet car drivers can save. Brace yourself: it’s a not-very-small fortune…

What is company car tax?

First, a little reminder. Company cars that are also used by employees for private motoring are considered employment benefits. Users therefore have to pay Benefit in Kind tax, known as BIK.

This tax is based on the list price of the car, its CO2 emissions, and which tax band the employee is in. Employees pay up to 35 percent BIK tax, on a sliding scale depending on CO2 emissions.

For some years now, it has become increasingly expensive. The government has tried to encourage people into lower-CO2 vehicles, while car list prices have gradually increased.

Take a popular company car: the BMW 320d SE diesel auto. It costs £36,475, and CO2 emissions of 132g/km place it in a 33 percent BIK tax band (May 2020). For a 40 percent tax payer, that results in a whopping £4,736 BIK tax bill – or £394 a month.

No wonder so many company car drivers are leaving their schemes and buying their own cars – often older, more polluting models, which completely counters the government drive to cleaner cars. Enter the electric car.

April 2020 electric company car tax changes

Businessman operating a Tesla Model X touchscreen

Starting from 6 April 2020, company car tax for electric cars changed. Simply put, BIK tax for the 2020/21 tax year has been reduced to zero percent.

That’s right, company car drivers will pay no BIK on an electric company car if they take delivery this financial year.

For the 2021/22 tax year, the rate rises, albeit to just one percent BIK. In 2022/23, it rises again, to two percent, then is held at that rate for another two years.

This means electric company car drivers will pay no more than two percent BIK on their EV until April 2025. It is an extraordinarily appealing deal.

If that BMW 3 Series driver can convince his or her bosses to offer an electric car, he or she will go from paying nearly £400 a month to nothing this year. After that, it will cost just a few hundred pounds a year – still probably less than they currently pay each month.

What other benefits are there for electric company cars?

It’s not just for Benefit in Kind tax that electric company cars make sense. Employees will also pay no fuel tax – because they don’t use any.

And while HMRC has classified electricity as a fuel for claim-back purposes, the reimbursement rate of 4p a mile shows just what money-savers EVs will be for companies as well.

Tax experts will like the fact EVs with zero CO2 emissions qualify for a 100 percent first year allowance. This means savvy companies can offset the cost of the car against their profits. Nonetheless, it is the savings for drivers that are the biggest draw.

The only proviso is that cars costing more than £50,000 are not eligible. This does rule out some big-name electric cars such as the Jaguar I-Pace and Audi E-tron.

The Tesla Model 3 still qualifies, though, as does the award-winning Vauxhall Corsa-e and upcoming Mokka-e, plus Volkswagen’s potentially pivotal ID3. If you’re a company car driver, what’s not to like?

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