From next year, company car users who obtain an electric car will not have to pay any Benefit-in-Kind tax during the next financial year. This has come to light after the treasury reviewed tax rules.

What is Benefit in Kind (BiK)?

When a car is provided for an employee by their employer that is available for personal use, the employee must pay some tax on the effective benefit that they receive for this.

HM Treasury calculates how much benefit they receive, based on the car’s “P11D” value (see below), compared to just receiving an equivalent amount in pre-income tax pay and then applies a BiK tax rate.

The government can set BiK rates to encourage employers and company car drivers to choose vehicles with lower CO2 emissions like pure electric cars or plug-in hybrids.

New changes for EV’s (Electric Vehicles)

This new change has followed on from the introduction of WLTP emission regulation, which are a more stringent test procedure than the NEDC process it replaced. BIK rates are based on CO2 outputs and WLTP sees higher on paper emissions recorded, company car users faced a potentially significant hike on the BIK rates they faced. To make up for that, the treasury replaced previously published BiK rates for the 2020/21 financial year with the new tables that see most BiK percentage bands by two points.

The charges will mean drivers choosing an EV as their company vehicle will pay no BiK rate for that financial year. The tax exemption applies to Electric Vehicles registered from 6th April 2020 and those registered before that date.