With the BIK deadline coming up in July, you might have some questions about cars as a company benefit – how do you account for them, what do you need to report, and can you save money with an electric car?
In this blog, we’ll discuss the latest rules around benefits-in-kind and how this could affect your decision to get an electric car for your business.
Benefits-in-kind on company cars and green savings
Company cars are usually taxed on two things: the list price and CO2 emissions. This creates something called benefits-in-kind (BIK), which is a benefit on which employers and employees will pay tax.
With a dream of a greener United Kingdom, HMRC has been upping the rates on petrol and diesel vehicles and has introduced a lower BIK rate for fuel-efficient and electric vehicles.
These new rates are fantastic for taxpayers and could save your business thousands of pounds in tax, which could be pumped back into your operations.
After being put in place on 6 April 2020, they calculate the company car taxable benefit based on the ‘electric range’ of the vehicle, as well as taking into account its level of CO2 emissions.
The current BIK rate in the 2021/22 tax year is 1% – rising to 2% in 2022/23 for cars that are capable of running more than 130 miles on battery power, with CO2 levels between 0 and 50g/km.
Over the course of a year, this can present a serious saving when compared to a comparable diesel or petrol model.
What does this mean for my business?
There are some obvious benefits to offering company cars for everyone in your business – by providing vehicles to your staff via salary sacrifice, you’ll make significant savings on National insurance contributions.
It will be greatly beneficial to your staff, too as they will also be able to reduce their own NI and income tax liabilities through a diversion of their salary to pay for said car.
If you wanted to manage a fleet of vehicles, you could buy them outright and maintain the servicing and maintenance yourself. Or you could operate them through a leasing scheme, thus using the company that leased you the vehicles at a fixed cost.
If you go the fully electric route, where a car has emissions of 0g/km, a 100% first-year allowance can be claimed on the purchase price of the vehicle, if it’s new.
This constitutes a massive tax relief on the vehicle in the year of the purchase and is much more preferable than, say, relief at 18%/6% over a longer time period.
These savings are of course done on a case-by-case basis, but as an incentive to make your business more economically friendly, as well as beneficial to your company and employees, it’s definitely something to look into.
Speak to us
If you need more advice about benefits-in-kind, how they affect your business and what you can do to be greener, we want to hear from you. Let’s discuss your options together.