If you work for a business or company, you may be given a company car by your employee for your private use. ‘Private use’ includes employees’ journeys between home and work unless they’re travelling to a temporary place of work.
This extra benefit is known as a benefit in kind tax (BIK). The cash value of the car is added to your salary meaning that your tax may rise if the addition of the value of the company car takes you above a tax threshold. The amount of tax you must pay depends on:
- CO2 emission
- Model and make of the car
- Price of the vehicle
- The fuel type
- How frequently you use the car
Therefore, BIK can have a large impact on your monthly wage.
Benefit in Kind Tax Incentive for Electric Cars
If your company provides you with an electric car, then CO2 emission is not a consideration, as one of the benefits of electric cars is they’re much better for the environment. Therefore, being given an electric vehicle as a company car would probably be cheaper overall than if you were given petrol or diesel, as they both produce greenhouse gases. Also, electric cars are considerably cheaper to run in general than cars using non-renewable fuels. Because of this, BIK helps the government to encourage more low emitting vehicles on the road.
BIK rates in April 2020 state that fully electric vehicles pay no company car tax in 2020 – 2021 tax year. In 2021 – 2022 only 1% and 2022 – 2023 only 2%.
Employer’s National Insurance
As well as the employee paying BiK tax on their car, the employer must also pay employer’s national insurance on the car’s BiK value, this is currently set at 13.8%.
How to work out taxable value
You can use HMRC’s company car and car fuel benefit calculator if it works in your browser.
Example
Let’s use the Hyundai Kona and Kona Electric as examples of the difference between an electric and nonelectric car when it comes to BIK value:
