The Government’s Electric Car Tax: What You Need to Know

by | Jan 26, 2023 | Editorial, News

Originally published on https://www.greendawn.co.uk

 

As we look to create a greener future, more and more businesses are making the switch to electric cars. With good reason! Electric cars are not only better for the environment, but they’re also cheaper to operate and maintain than traditional fuel-powered vehicles. Could there be any more incentives to drive an EV – yes! The government has slashed electric company car tax until 2025 and this guide will explain everything you need to know about making the most of it.

Receiving a company car can be hugely beneficial but this can be slightly negated by the company car tax bill, or is it? Let’s find out.

As soon as you drive off in your company car you are hit with quite a large tax bill because the car becomes a benefit in kind (BIK), with HMRC deciding how much you are charged based on three factors: the P11D value of the vehicle, the COemissions and the employee’s income tax band.

So what is the P11D value? Simply put it’s the vehicle’s taxable value which is the list price, VAT and delivery charge combined.

The government then takes into consideration the amount of emissions the vehicle produces per mile driven and charges accordingly – of course EV’s emit no emissions and therefore should be charged lower right? Absolutely! In fact, company car tax was completely eliminated for EV users in the 2020/21 financial year and only rising to 1% of the EV’s P11D value in 2021/22. This will of course rise again the following year but only to 2% and will remain at this amount until 2025.

Typically, you would be charged hundreds of pounds a month at the usual 16% rate, therefore EV’s are providing huge savings. As an added bonus, the tax rise for petrol and diesel vehicles will be rising to 37%, meaning an even bigger saving!

But what happens after 2025? Well as we’ve come to expect from the government they will rise again as they’ll look to recoup some of the lost revenues, but not in line with other vehicles.

The government also takes into consideration whether the driver is in a higher or lower income tax band. For example, if you have an EV that costs £50,000 it would have a BIK value of £50,000 x 2%, which would equate to £1000 per year. If you were in a higher-rate tax band you would need to multiply £1000 by 40%, which totals £400 a year. Or at a lower-tax rate of 20% would cost £200. Compared to a vehicle emitting COat 37% equating to £7400 in the higher income tax band. So an EV could save you a whopping £7000 a year – now that seems like a no brainer to me!

Making the switch to an electric car is a great way to reduce your carbon footprint and save money on fuel costs. Thanks to the government reducing company electric car tax too, it’s also more affordable than ever before. Making the switch to an electric car for your business seems to be the best option – you might be surprised at just how much you can save.

 

For more guidance contact the OZEVgrant.com team.

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