What are the Benefit in Kind (BIK) Rules for EVs?
If you have landed on this page, your probably asking yourself the exact same question we were.
What are the benefits in kind rules for EV’s? But before you can understand this, you first need to know what Benefit in Kind Tax is.
In this guide, we will explain this, the rules for EV’s and what changes we can expect in the near future.
Understanding Benefit in Kind (BIK) Taxation
Benefit in Kind is when an employee receives perks from their employer but it is not included in the employee’s salary. These can range from a number of things from company cars and free meals to private healthcare.
Anything that you can use outside of business hours and in your own free time such as a car is considered a perk and HMRC will require you to pay tax on it. This is where benefit in kind tax comes into play and its often abbreviated to BIK.
HMRC will determine how much tax you have to pay but one of the most common taxable perks is a company car. There are a variety of factors that will determine what you may pay such as the make and model of the vehicle, it’s CO2 emissions and the type of fuel type and engine size. If your going for a more expensive vehicle which guzzles fuel, you can expect to pay more than a small more efficient town car.
BIK Rules for Electric Vehicles
The current BIK rate for BEVS is 2% and will remain this way for the next couple of financial years.
For PHEVs, it’s slightly different, as the BIK rates are calculated by the low CO2 emissions and the electric range. For a low BIK rate, you want a high electric range and a low CO2 emission output.
Electric cars with a higher driving range will have a lower BIK because they can travel further on electric power, which reduces the amount of emissions released into the atmosphere and, therefore less of an impact on the environment.
Advantages of EVs in BIK Taxation
By having a lower BIK, it’s an attractive option for employees wanting a company car as you will have far less personal tax to pay than if you opted for a more expensive model that had an internal combustion engine.
This, in turn, saves money for the employees, but employers can also save with a lower BIK. This is because they would pay less National Insurance Contributions for employees, so it’s a win-win for both parties.
It encourages businesses and companies to adopt electric vehicles and introduce them to their fleet. The lower BIK rates serve as an incentive and enhance the reputation of the company as they look to switch to a more greener and sustainable future.
Recent and Upcoming Changes in BIK Rates for EVs
In recent years, the UK government has made significant changes to BIKs in favour of electric vehicles. In 2020 BIK rates were reduced to 0%, then in 2021, they went up to 1% and from 2022 to the time of writing this in May 2023, they are currently at 2%.
Although we can’t predict the future, it’s likely the government will continue to incentivise EV usage as they aim for their 2030 targets. We will likely see BIK rates favour zero and low-emission vehicles as the UK strives to reduce its carbon footprint.
This will hopefully be one of the many factors that encourage businesses to purchase EVs and continue the rapid growth of the EV market in general.
As you can see, lower BIK rules are certainly something that the EV industry can benefit from as it provides a far cheaper alternative for employees and employers when it comes to costs and tax. These incentives are crucial in helping promote the transition to electric vehicles for businesses and companies.
With low CO2 emission and a long electric range, you can expect to pay a lower BIK than other vehicles. Given these financial benefits, this will also contribute to a large uptake of electric vehicles on the road, which in turn helps align with the aim to combat climate change.
Take a look at other articles and posts around the world of electric vehicles. They answer some of the most common questions in the industry and will give you a better understanding of certain topics.