News & Blog

 

The rate of taxable benefit in kind for cars provided to employees seems to change almost as fast as the British weather, as does government policy towards encouraging us to use electric vehicles.

As recently as 2016 in a bid to encourage the purchase of electric cars, the annual benefit in kind (BIK) rate was as low as 5% of the original market value (OMV) of the vehicle. 

Then policy changed in a bid to drive down vehicle emissions and all benefits for cars of whatever propulsion type were raised so that even those with the lowest emissions ended up being taxed at 16% of OMV in the current tax year.

All this is changing again from April 2020 with the benefits scale for electric and hybrid (and indeed hydrogen powered) cars based on a combination of pure electric range and CO2 emissions. In addition, two scales will apply, depending on when the car is first registered.

The first thing that you need to look at is the published CO2 emissions figure, if that is less than 51g/km then a special scale rate applies depending on the electric range of the vehicle. If the car is purely electric (or otherwise has 0 CO2 emissions) then the lowest rate of all will apply.

From 6th April 2020 that lowest rate will be zero, so an employee driving an electric car will have no benefit in kind charge! That is obviously too good to last for long and the BIK rate is scheduled to rise by 1% per year until tax year 2022/23 when the rate will be still an incredibly low 2%.

If you buy a new car and it is registered on or after 6th April 2020, then a second set of BIK rates applies with a 2% reduction in the BIK rate. That makes little difference for a purely electric vehicle with a 0% rate in any case, but it does mean that a new hybrid with an electric range in excess of 130 miles will also qualify for the 0% rate (reduced from 2%).

All these rates are then subject to the same escalation of 1% per year as mentioned above for older purely electric cars.

In addition all news cars with less than 51g/km CO2 emissions are eligible for the business to claim full write off of the vehicle for tax purposes in the year of purchase, at least until April 2021.

So we have a car that is fully tax deductible and not subject to any benefit in kind. It sounds like the government has finally realised that the best way to get low emissions cars into wider use is to encourage employers to provide them. Now all they need to sort is the infra-structure so we can charge them!

 

For further advice on that matter, please do not hestitate to get in touch with me or your local Thomas Westcott office