The Business Guide to Electric Vehicles

Understanding the tax implications of electric vehicles, such as Benefit-in-Kind, is important for businesses that are transitioning to EVs to achieve sustainability goals. This guide explains the benefits of EVs to businesses and how BIK is calculated.

What exactly is Benefit-in-Kind (BIK)?

Benefit-in Kind (BIK), also known as a “perk tax”, is a tax employees are required to pay for perks that their employers provide, such a company cars, mobiles, or accommodations. The tax is sometimes called a “perk” tax because it only applies to noncash benefits. For company cars the BIK tax is based on factors such as the value of the vehicle, its CO2 emissions and other factors. This affects both the employee and employer.

BIK for vehicles is calculated based upon the list price of the vehicle, its emissions (mainly CO2) and fuel type. Tax rates are typically higher for vehicles with higher CO2 emissions, so businesses will be encouraged to choose lower-emission cars to save money.

How to Calculate BIK?

Calculating the BIK for a company vehicle is done by multiplying a percentage rate with the P11D value of the car (the list price, including VAT and delivery charges). The CO2 emissions of the car are used to determine the percentage rate. This rate is multiplied by P11D (the car’s list price including VAT and delivery charge) to calculate the tax-free benefit.

As an example:

• P11D value: PS30,000
• BIK Rate: 15% based on CO2 emissions 100g/km
• Taxable benefit: PS30,000 x 15% = PS4,500

The employee is taxed on their individual income tax rate (20%-40% or 45%).

BIK for Electric Vehicles

Electric vehicles (EVs) offer businesses several tax benefits, including a lower BIK rate. Businesses in the UK have been offered tax incentives to encourage them to adopt cleaner vehicles.

Electric vehicles have a lower BIK tax than traditional petrol and diesel vehicles due to the fact that they emit no tailpipe emissions. Here are a few key points:

1. Lower Rates of BIK for EVs : In the UK, electric vehicles with zero CO2 emission are subject to a lower rate of BIK than petrol or diesel vehicles. The BIK rate on pure electric cars will remain at 2% in 2025. The BIK rate for pure electric cars is expected to remain at 2% in 2025.
2. Long-Term Benefits:
   
   These lower tax rates mean that employees who drive electric vehicles will pay less in BIK taxes, which makes EVs a more attractive option for companies looking to provide their employees with a fleet.
3. Plug in Hybrid Vehicles
   
   The BIK rate for plug-in hybrids, which are vehicles with both an electric motor as well as a petrol/diesel engine, is determined by the CO2 emissions of the vehicle and its electric-only driving range. The lower the BIK rates, the longer the range of electric-only vehicles.

Benefits of Electric Vehicles to Your Business

Electric vehicles are more than tax incentives. EVs are a great way to reduce operating costs, improve sustainability, and offer employees a benefit. Here are some additional benefits to switching to EVs.

1. Fuel Cost Reduction
   
   The cost of operating EVs is much lower than that of traditional petrol or diesel cars. EVs are typically cheaper to operate than traditional petrol or diesel vehicles, particularly when charging at home. This can lead to significant savings over time for companies with large fleets.
2. Enhance Corporate Image and Sustainability
   
   Businesses can enhance their brand image by switching to EVs. This will also appeal to eco-conscious consumers. EVs are a great way for businesses to reduce their carbon foot print.
3. Government Grants and Incentives
   
   Many governments offer incentives to businesses who adopt electric vehicles. These include grants or charging infrastructure. These incentives can reduce the initial cost of an EV fleet.
4. Reduce Maintenance Costs
   
   The EV has fewer moving components than traditional combustion engines, which results in lower maintenance costs and a shorter time between repairs. Due to regenerative brakes, EVs don’t require oil changes and their brake systems last longer.
5. Fleet Insurance Savings
   
   Electric vehicles are generally cheaper than traditional vehicles. EVs have lower premiums than traditional vehicles because they are safer and less likely involved in accidents. Manufacturers also offer service packages and warranties that help reduce the risk.
6. Reduced Congestion Fees and Tolls
   
   Electric vehicles can help you avoid many of the policies that are in place around the globe, such as road tolls and congestion charges. It can reduce costs for transporting employees and goods, particularly in urban areas.
7. Attraction of Employees and Retention
   
   Employees with strong environmental consciousness may find it attractive to receive an electric car as a company vehicle. The EVs offer a quieter, smoother driving experience that can increase employee satisfaction.

Conclusion

Electric vehicles are a great way to improve your company’s sustainability and save money. Businesses looking to upgrade their fleets will find EVs attractive because of the lower BIK rate and long-term savings in fuel, maintenance, insurance, etc. Adopting EVs will also help your business to improve its image and save money on operations costs.