Every car has a BIK rate (Benefit-In-Kind) percentage banding based on its CO2 emissions.
Pure EVs, with no CO2 emissions, sit in the 0g/km banding which until 2025 has a BIK percentage of 2% (both current and future BIK tax bands can be found on gov.uk).
This means that your total BIK cost is calculated based on the BIK tax banding (being 2%), multiplied by the vehicle’s P11D value (which is the list price, including extras and VAT, but without the first-year registration fee and vehicle tax), multiplied by your income tax banding.
As an example, Sarah who works at ABC Limited is considering getting a shiny new electric company car for her retail business. The electric car's P11D price is £40,000 and BIK banding is 2%, the amount she would calculate tax from is £800 (2% of £40,000). Then it’s a case of applying her personal income tax rate to that amount of taxable benefit.
A taxpayer earning £20,000 on a lower rate of 20% would pay £160 a year (20% of £800) in BIK tax for their electric car per annum, whilst a taxpayer earning £60,000 on a higher rate of 40% would pay twice that amount: £320 per annum, and in the scenario where the amount of taxable benefit pushes your overall income into the next income tax band, then this amount will be taxed at the two different rates.
Continuing the example above, a taxpayer earning £49,870 with a BIK amount of £800 would see that amount taxed in the following way - £400 at 20% (based on the 2022-2023 Basic rate band finishing at £50,270) and £400 at 40% (based on the 2022-2023 Higher rate band starting at £50,271), per annum.
Although these calculations are relatively straightforward, there are some other factors that can be involved in how much tax a company EV car driver pays. For example, the value of the car is reduced if they have it part-time, or they pay something towards its cost, although how much depends on their contribution or the length of time they have the car.
Drivers can understand this further using the HMRC online calculator, or speak to a tax adviser to understand the tax implications for their individual circumstances.
How BIK works for Plug-in Hybrids
Understanding how to calculate electric car BIK is relatively straightforward. However, the calculation is a little more complex for Plug-in Hybrids (PHEVs). The amount of BIK tax a driver pays depends on how far the PHEV can go on electric-only power - the longer the range, the lower the tax.
For example, if your PHEV vehicle's P11D price is £40,000 and it has an electric-only range of 29 miles then the 2025 BIK banding is 14% and the taxable amount will be £5,600 (14% of £40,000). If instead, your PHEV vehicle had a range of 60 miles then the 2025 BIK banding would be 8% and the taxable amount would be £3,200 (8% of £40,000).
The current and future BIK tax bands can be found at Gov.uk.
Notice
The information provided on this website is for general informational purposes only. It is based upon our understanding of the guidance at the time of publication and it is not a substitute for legal or tax advice based on your own circumstances.
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