Adding vehicles to a fleet, especially electric ones can be confusing. We’re here to help you understand company car tax, tax relief, and the accounting practices that you should know about to maximise the benefit of adding electric cars and vans to your business.
Not only are electric and plug-in hybrid vehicles contributing to the reduction of CO2 emissions and improving air quality, if driven and administered correctly they could reduce your tax and operational costs too.
Benefit-in-Kind (BiK) is the monetary value associated with a non-cash benefit given to an employee, sometimes referred to as notional pay, fringe benefits, or perks. Typically these come in the form of private medical insurance, a company car, or a fuel card. As a cash value is not easily attributable to these benefits there are specific calculations for determining the amount of tax payable by the employee.
The tax due for a company car that is a passenger car is based on the P11D value of the vehicle, the associated CO2 emissions and electric range (if any) of that vehicle, and the employee's income tax bracket.
The tax due for a company car that is a Light Commercial Vehicle (LCV), is based on the P11D value assigned by HMRC every tax year and the employee's income tax bracket.
Due to the low CO2 emissions of electric and plug-in hybrid vehicles, they could save the employee thousands of pounds in Benefit-in-Kind (BiK) payments each year compared to normal petrol and diesel cars, and at the same time, reduce the employers Class 1A National Insurance Contributions (NICs).
In order to calculate Company Car Tax (CCT), you’ll need to know your P11D value, every vehicle has one of these.
For passenger cars, the P11D value is the list price of the car including VAT and any delivery charges but it does not include the first registration fee or Vehicle Excise Duty (VED) also known as road tax or Road Fund Licence (RFL). Be careful, some manufacturers included the delivery charge in their list price but others don’t.
All Light Commercial Vehicles (LCVs) such as pick-up trucks and panel vans have a fixed P11D value which is set by the Government and normally changed every tax year.
It is worth noting that a van is not classed as a company car if the driver's private use is deemed to be insignificant. From 6th April 2021, there will be a zero benefit charge for fully electric vans.