BiK for Electric Cars: Understanding Company Car Tax in 2024

As the UK pushes towards a greener future, the Benefit in Kind (BiK) rates for electric cars have become a hot topic for company car drivers and fleet managers alike. Here, we’ll explore the current BiK rate for electric vehicles, how it compares to traditional fuel types, and what changes can be expected in the coming years.

What is BiK rate?

Benefit in Kind (BiK) (also referred to as company car tax) is a tax on employees who receive perks or benefits from their employer in addition to their salary. For company cars, the BiK rate is a percentage of the vehicle’s value that is added to the employee’s taxable income. This rate varies depending on the car’s CO2 emissions, making electric cars particularly attractive due to their low or zero emissions.

How is BiK calculated?

The calculation for BiK on company cars involves three main factors:

• The car’s P11D value (list price including options, VAT, and delivery charges)
• The BiK percentage rate (based on CO2 emissions)
• The employee’s income tax bracket

The formula is: (P11D value x BiK percentage rate) x Income tax rate

For example, if an electric car has a P11D value of £40,000, the current BiK rate of 2%, and the employee is in the 40% tax bracket, the annual BiK tax would be:

(£40,000 x 2%) x 40% = £320 per year

What is the BiK rate for electric cars in 2024?

As of 2024, the BiK for electric cars remains low, at 2%. This rate has been fixed since the 2020/21 tax year and is set to continue until the end of the 2024/25 tax year. This represents a significant incentive for company car drivers to choose electric vehicles over their petrol or diesel counterparts.

Looking ahead, the government has announced a gradual increase in BiK rates for electric cars:

Even with these increases, electric cars will still maintain a substantial tax advantage over conventional vehicles.

How does the BiK tax on electric cars compare with hybrid or petrol cars?

The difference in BiK rates between electric cars and their petrol, diesel, or hybrid counterparts is substantial. While electric cars benefit from a flat 2% rate, other vehicles are taxed based on their CO2 emissions, which can result in significantly higher BiK rates.

For example:

This stark contrast demonstrates the financial incentives for choosing electric company cars. According to Electric Car Guide, petrol or diesel vehicles can have BiK rates as high as 37%, compared to just 2% for fully electric vehicles.

Do you pay BiK tax on electric cars?

Yes, you do pay company car tax on electric cars, but at a significantly reduced rate compared to conventional vehicles. The current 2% rate for electric cars means that employees can enjoy the benefits of a company car with a much lower tax liability.

It’s worth noting that while the BiK rate for electric cars is low, it’s not zero. This is a change from the 2020/21 tax year when fully electric vehicles enjoyed a 0% BiK rate. However, even at 2%, the tax burden remains minimal compared to other fuel types.

The impact of these low BiK rates on electric vehicle adoption has been significant. Fleet News reports that the introduction of the zero-percentage BiK rate in 2020 (which has since risen to 2%) has helped thousands of company car drivers make the switch to electric vehicles.

For businesses considering transitioning their fleet to electric vehicles, the BiK savings can be substantial. Salary sacrifice schemes for fleets are gaining unprecedented popularity, thanks to the favourable BiK tax treatment for electric vehicles. With rates remaining low until at least 2027/28, there’s a clear financial incentive for both employees and businesses to go electric.

Conclusion

As we move towards a greener future, the BiK rates for electric cars continue to make them an attractive option for company car drivers and fleet managers. 

While rates are set to increase slightly in the coming years, electric vehicles will maintain a significant tax advantage over their petrol and diesel counterparts. By understanding and leveraging company car tax rates, businesses can make informed decisions about their fleet composition, potentially saving money while reducing their carbon footprint.