A Benefit-In-Kind (BIK) arises when employees or directors receive benefits excluded from their salary. One of the more typical taxable benefits are company cars, which become taxable if there is allowance for private use. Only when there is strictly no private use of the vehicle would the employee or director not be liable to additional tax on the benefit.
For several years now, HMRC have focussed the policy around lower tax for lower emissions. Therefore, in order to keep the charge low there is an obvious benefit in providing lower emission cars. The BIK charge is calculated by applying a percentage to the official value of the car - of which the percentage is driven by the CO2 emissions of the car.
As technology has advanced, we have witnessed the rise in popularity and production of electric cars. Electric cars benefit from lower BIK rates as a result of the obvious environmental benefit, and as of 2020-2021 there will be an even greater incentive.
Through the 2019-2020 tax year the BIK percentage rates for petrol, electric, diesel and Real Driving Emissions 2 (RDE2) vehicles are:
- CO2 emissions less than 50g/km – 16%
- CO2 emissions between 51-75g/km – 19%
- CO2 emissions between 76-94g/km – 22%
As of 2020-2021, HMRC have introduced a tiered structure based on the electric-only mileage of electric cars with emissions within the 0-50g/km bracket.
For electric cars from tax year 2020-2021 the taxable BIK rates are:
- Zero emissions or 1-50g/km with an electric range of 130+ miles – 2%
- Electric range of 70-129 miles – 5%
- Electric range of 40-69 miles – 8%
- Electric range of 30-39 miles – 12%
- Below 30 miles – 14%
Nextgreencar.com provide an extensive and useful table of all BIK rates for both the current and following tax year.
Motors.co.uk have compiled a useful list of the best electric cars of 2019 whilst considering the range of the vehicle on a single charge. On all electric cars, the range drives the BIK charge up or down,whilst on anything else, petrol, diesel or hybrid, it is the CO2 emissions.
The above shows electric cars will see a significant reduction in their BIK charges depending on their electric only range. The signs are clear that HMRC and the Government are hoping this will aid the push towards electric vehicles, whilst there will be a huge reduction in the Benefit-In-Kind charge for employees and directors. The time is now to be investing in electric vehicles.
Contact us today if you would like to discuss the issues raised in this article further.