Benefits of changing Kind tax for electric car
Benefit-in-Kind (BiK), also called ‘company car tax’, is a small tax that you pay if you get a car from your employer through a salary sacrifice scheme. You pay a small amount of tax for having the car, but you can save money on Income Tax and National Insurance.
To encourage people to use cars that have lower emissions, the government made the BiK tax very low for electric cars. Before 2021, people who used electric cars didn’t have to pay any BiK tax. But starting in April 2021, the rate went up to 1%. Then in April 2022, it went up to 2%.
Starting in April 2022, all drivers who use a company car for personal use had to pay 1% more BiK tax (except for drivers of some expensive cars). That means people who drive electric cars now pay 2% of the BiK tax. That’s still much less than the amount of tax that people who drive petrol, diesel, or hybrid cars have to pay. The 2% rate will stay the same until April 2025 and then go up by 1% each year until 2028.
When you work for a company, sometimes you get benefits in addition to your salary, like a company car. You have to pay tax on these benefits, and it’s called Benefit in Kind (BiK) tax. BiK tax is treated separately from your salary by the government, which means that you have to pay the tax before you receive the benefit. If you use a company car for personal reasons, you have to pay the BiK tax out of your monthly wage, which is the amount of money you get paid by your employer each month.
Calculate the benefit of a kind tax
Benefit in Kind (BiK) tax is a tax that you have to pay on a company car if you use it for personal reasons. The amount of tax you pay is based on two things: the car’s CO2 emissions and the car’s P11D value.
The P11D value is the list price of the car, including VAT and any delivery charges. But it doesn’t include the car’s first registration fee or annual road tax. So, the amount of BiK tax you have to pay depends on how much the car costs and how much pollution it produces. The more expensive and polluting the car is, the higher the BiK tax will be.
Different benefit in kind tax credit
- Benefit in Kind (BiK) rates are the amount of tax you pay on a company car
- BiK rates are based on the car’s CO2 emissions, which measures its pollution levels
- The BiK rate ranges from 2% for zero and low-emissions vehicles to 37% for cars that create more pollution.
- The BiK rate for electric cars increased from 1% to 2% in April 2022
- The 2% rate for electric cars is fixed until April 2025
- From April 2025, the BiK rate for electric cars will increase by 1% each year until 2028
- The low BiK rate of 2% for electric cars gives drivers a huge subsidy, and employees can save on tax when switching to an electric car through their employer with salary sacrifice.
Compare kind tax with a hybrid or petrol car
This statement highlights the lower tax burden on electric car drivers as compared to drivers of hybrid, petrol, or diesel cars. Despite the recent increase in BiK tax rates for electric cars to 2%, they are still subjected to lower taxes compared to other car types. Drivers of hybrid cars can pay up to 10 times more BiK tax than an electric car driver would pay, making electric cars a more cost-effective option for drivers.
The benefit of kind tax for driver
The benefits of having an electric car through your employer. If you already have an electric car, you will continue to enjoy low BiK rates, which means you can save money on taxes and help the environment. If you’re looking for a new car through your employer, consider leasing an electric car through their salary sacrifice scheme. That can help you save money on BiK rates, fuel, and road tax while driving the latest electric car models and contributing to a greener planet. The scheme is also free for employers to join and can be set up quickly.
The amount of BiK I’ll pay
- P11D value
- BiK rate
- Your income tax bracket (e.g. 20%, 40%, or 45%)
This formula calculates how many benefits in Kind (BiK) tax you will pay for an electric car based on the car’s P11D value, BiK tax band, and your income tax bracket.
For example, if you have an electric car with a P11D value of £20,000, and the BiK rate is 2% with an income tax bracket of 20%, you will pay £80 per year in BiK tax.
However, if you get the car through a salary sacrifice scheme, the annual BiK tax would be split across your monthly payments, so you would only pay £6.67 per month.
- The BiK tax is calculated based on the P11D value of the car, the BiK tax band, and the income tax bracket.
- The calculation is an example of BiK tax payment for petrol, diesel, and hybrid cars with a P11D value of £20,000.
- The BiK rates for petrol, diesel, and hybrid cars are higher than for electric cars because the BiK rate varies based on the car’s CO2 emissions.
- For a petrol car, the BiK rate would be £1,200 per year or £100 per month.
- For a diesel car, the BiK rate would be £1,120 per year or £93.33 per month.
- For a hybrid car, the BiK rate would be £520 per year or £43.33 per month.
If you are a shareholder or company director who wants to save on Benefit in Kind (BiK) and fuel costs, then choosing an electric car is the best option. That is because electric cars have much lower BiK rates compared to petrol, diesel, and hybrid cars. Additionally, you can get a brand-new electric car, which means that you can also enjoy the latest technology and features while saving money.