As more and more people and businesses switch to electric cars – not least due to the government ban on sales of new fuelled vehicles from 2030 – all parties must understand what this means for benefits in kind.
Benefits in kind exist to levy a tax liability against benefits received by an employee in addition to their salary and other pay. Examples include company cars, mobile phones, gym memberships, health insurance and childcare vouchers.
The non-cash benefit must be available for personal use to be taxable. Therefore, a company car or mobile available exclusively during working hours and for carrying out workplace duties is not a benefit in kind – but if either is accessible for personal use, they are.
Benefits in Kind: Fuelled Company Cars
The benefit in kind taxation calculation for fuelled cars is based on the CO2 emissions of the vehicle and its valuation when new, taxed on a sliding scale. Cars with a higher as-new value and with higher emissions carry a higher tax burden than smaller, cheaper and more economical vehicles.
Payroll managers will look at the P11D value, the taxable value assigned to the car, and then CO2 emissions as a number of grams per kilometre, abbreviated to g/km. The actual tax rate varies from 2% to 37%.
As an illustration:
Employee A has a company car with a P11D value of £40,000, producing CO2 emissions of 100 to 104 g/km. The tax rate is 25%, applied to £40,000 – or £10,000.
Employee B has a smaller car with a P11D value of £15,000 but a higher CO2 emissions rating of 120 to 124 g/km. Their taxable benefit is 29% of the value – so £4,350.
Employee C has a larger car worth £60,000 with lower emissions of 51 to 54 g/km. They pay tax based on a benefit of 15% against £60,000 – or £9,000.
You can find the applicable tax rates on the Guidance Pages.
Benefits in Kind: Electric Company Cars
Electric cars produce zero emissions, so the benefits in kind calculation works differently. Rather than calculating the emissions, the tax rates are fixed and apply equally to all electric company cars. The rates are:
Tax years 2023/24 and 2024/25: 2%
Tax year 2025/26: 3%
Tax year 2026/27: 4%
Tax year 2027/28: 5%
As the list above indicates, the government intends to increase the taxable rate by 1% annually. However, this remains substantially lower than the taxable value of a petrol or diesel car.
Benefits in Kind: Hybrid Company Cars
Hybrids are different because these vehicles have both a fuelled engine and an electric motor. Hybrid company cars are taxable based on the battery range – or how far they can travel without relying on the fuelled engine.
Older hybrid models have a far shorter range than more recent vehicles. If they produce over 50 g/km of CO2 emissions, they are effectively taxable like a standard petrol car, based on the published rates for the applicable tax year.
As a recap, the tax rates are as follows, depending on the range in electric mode, all based on CO2 emissions of between 1 to 50 g/km.
Under 30 miles range: 14%
Range of 30 to 39 miles: 12%
Range of 40 to 69 miles: 8%
Range of 70 to 129 miles: 5%
Range of 130 miles or more: 2%
Most plug-in hybrid models emit CO2 emissions far below the 50 g/km threshold, and the greater the capacity of the electric motor, and the lower the P11D value of the car, the lower the benefit in kind taxable value.
For more information about calculating the taxable benefit in kind on any company car or assessing the pros and cons of transitioning to a hybrid or all-electric company car fleet from a tax perspective, please get in touch with SAS Accounting at any time.