Is it time to go electric?
(P11d on Electric cars)

What are the relevant taxes for a company car?

When a company/employer provides a company car to the director/employee that is available for a private use, both parties become liable to certain tax liabilities.

• The company/employer pays P11D tax, also known as Class 1A National Insurance at 13.8% of P11D or benefit value (This rate rose to 15.05% for first 7 months of 2022/23).
• The directors/employees pay Benefit in Kind (BIK) tax on the benefit value in accordance with their tax band i-e 20%, 40% or 45% if they are basic rate, higher rate or advanced rate tax payer respectively.

How to calculate Car P11d value?

The P11d value of a car consists of;

• Car’s list price
• Optional features
• Delivery fees
• VAT only (Don’t include 1^st years vehicle tax and registration fees)

How to calculate Car benefit?

Car benefit can be calculated as follows;

Cars P11d value x P11d/BIK rate (Carbon Emission band of the car)

Find more details on Emission bands below.

How to calculate P11d tax for companies?

P11d tax for the companies / employers can be calculated as follows;

Car benefit multiplied by 13.8%

How to calculate P11d/Benefit in Kind tax for directors/employees?

P11d tax or Benefit in Kind (BIK) tax for directors/employees can be calculated as follows;

Car benefit multiplied by relevant personal tax rate (20% or 40% or 45%)

Is now the time to make the switch to Electric company car?

Benefit in kind rules on Full electric cars changed drastically couple of years ago, where BIK/P11D rate was reduced to 0% in the first year. It was 1% in last tax year (2021/22) and presently it is 2% for the current tax year 2022/23. Directors and employees who drive fully electric company cars will continue to benefit from a 2% P11d/Benefit-in-kind rate until at least 2024/25.

So, if you buy Tesla Model 3 for £50k, the P11d value will be £1k (£50k @ 2%) only.

The company will be paying P11d Class 1A NI at 13.8% on P11d value. £1,000 @ 13.8% = £138

You will be paying personal tax on P11d value at your top marginal rate (20% or 40% or 45%).

• If you are a basic rate taxpayer: £1,000 @ 20% = £200
• If you are a higher rate taxpayer: £1,000 @ 40% = £400
• If you are an advanced rate taxpayer: £1,000 @ 45% = £450

It is obvious that, when compared to a conventionally fuelled equivalent (up to 37%), the difference in employee BiK rates for electric cars (2%) is quite significant. Consequently, the car benefit value of an electric car is significantly less than diesel/petrol car benefit value and hence there is a massive savings for the company/employer as well as for the director/employee in terms of taxes and National insurance.

Capital allowances on Electric cars

The company can also claim 100% First year allowance (Capital allowance) on such purchase as long as;

• The vehicle is new
• The vehicle if full electric (Not hybrid)
• The vehicle is purchased and owned by the company. This could be out right fully paid or via Hire purchase or via Finance lease, where ownership will eventually be passed on to the company. So, you should not consider operating lease for this purpose.

Salary sacrifice

Normally, if an employee has a company car provided by their employer under a salary sacrifice arrangement, the taxable benefit is the higher of the salary given up or the taxable car benefit.

The provision of a fully electric car under a salary sacrifice arrangement allows for the employee to retain the lower benefit-in-kind tax charge.

Government car grant

The government’s ‘plug-in’ car grant is designed to encourage and increase the purchase of electric cars. The grant is now capped at £1,500 towards the cost of a new electric car. The grant has become gradually less generous over the years; and while no formal date has been provided for the end of the scheme, it seems unlikely to last much beyond 2023. Several conditions must be met to receive this grant. The car must be brand new and cost less than £32,000 (including VAT and delivery).

There is also a government grant towards the cost of an electric van, capped at 20% of the purchase price, up to a maximum of £5,000 (or £2,500 for a small van). In addition, there are government grants for some electric motorcycles (maximum grant £500).

Vehicle excise duty

The vehicle excise duty (VED) rates for all fully electric vehicles have been reduced to nil until at least 2025.

Running costs: Electric vs petrol

The cost of charging an electric vehicle is far lower than the price of fuel, meaning electric car cost per mile figures are significantly lower for similarly priced electric and conventional cars. 

Practical tip

Switching to a fully electric company car offers substantial tax benefits both for the employer and the employee. As things stand, the capital allowance benefits on the purchase of electric cars and the installation of charging equipment, and the lower rate of benefit-in-kind on electric  cars, are set to run until March 2025. Given the upcoming 2030 ban on conventional vehicles, there is no guarantee how long these benefits will be retained. Thus, if employers wish to take advantage of the tax breaks listed here, they should consider doing so sooner rather than later.

BIK/P11d rates

Note: You should add 4% up to a maximum of 37% for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard.