The latest HMRC figures suggest there are around 720,000 employees paying company car tax in the UK. This is down from nearly a million employees in 2015/16, with the government blaming the Covid-19 pandemic and the downturn in the economy for the decline in popularity.
That said, fleet vehicles remain very popular. After three years or so of commuting and working for a living, these cars are sold second-hand at a good price. Which is why, with one eye on speeding up the adoption of electric vehicles, the government is keen to incentivise their use as company cars.
In this short guide, we outline just how much tax fleet car drivers who go electric could save.
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 salary tax band the employee is in. Employees can pay up to 37 percent BiK tax, on a sliding scale depending on the car’s CO2 emissions.
For several years, BiK tax 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 Nissan Qashqai 1.3 DIG-T 140 Acenta Premium. It costs £30,140, and CO2 emissions of 142g/km place it in a 33 percent BiK tax band (correct in June 2024). For a 40 percent tax payer, that results in a whopping £3,978 BiK tax bill.
No wonder so many company car drivers are leaving these schemes and buying their own cars – often older, more polluting models, which completely counters the government drive to cleaner cars. Enter the electric car.
Electric car BiK tax savings
After 6 April 2020, company car tax for electric cars changed. For the first 2020/21 tax year, it was reduced to zero percent.
Now we’re into the 2024/25 tax year, the rate for new cars has risen, albeit still only to two percent BiK. In 2025/26, it rises to three percent, followed by four percent in 2026/27 and five percent in 2027/28.Â
This means electric company car drivers will pay no more than five percent BiK on their vehicle until April 2028. It is an extraordinarily appealing deal.
If that Nissan Qashqai driver can convince his or her bosses to offer an electric car, he or she will go from paying £331.59 a month to around the same figure per year – or potentially even less, depending on the EV chosen.
What are the other benefits for electric company cars?
It’s not just for saving on 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 8p per mile shows just what money-savers EVs will be for companies as well.
Tax experts will like the fact that, until 31 March 2025, electric vehicles 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. And the same allowance applies to businesses that install electric charging points, too.
