Explained: Benefit-in-kind for electric vehicles
At the moment, the government is doing as much as it can to encourage wider use of EVs. That has included grants for new purchases and chargepoint installations all the way to investment for businesses breaking into the sector.
However, there’s another way you can also benefit from this government support. And that’s to take advantage of the very supportive benefit-in-kind rules that currently apply to EVs.
Now, you might be wondering what on Earth benefit-in-kind is and why you should use it, so here’s a short explainer!
What is a benefit-in-kind?
Essentially, it is a perk or benefit that you get at work, which is not factored into your salary or wage. The most popular forms of a benefit-in-kind are company cars or private health insurance.
However, as some benefits-in-kind, like cars, can be valuable, the government has rules that tax people if they receive a benefit-in-kind that can be used privately – which most company cars are. If they did not do this, people could potentially pay less taxes despite receiving items worth a lot of money.
How much are company cars taxed?
The tax rate a person – not the company – is charged depends on the car’s fuel type. And this is where it’s beneficial to have an EV. Whereas someone with a petrol-powered vehicle could have to pay at least £1,000 per year to use a company car, someone driving an EV will pay just 1% this year.
The incentives are also strong for plug-in hybrid drivers where the benefit-in-kind rate is based on CO2 emissions and pure-electric driving range, which sees drivers pay between 1-13% this year (for reference, drivers of cars without electric-only capability will pay between 14-37%.
After this financial year, the rates remain most beneficial for the cleanest vehicles with rates only rising by 1% for 2022/23 and 2023/24.
How can you take advantage?
If you are an employee, you can ask or encourage your company to take advantage of the many tax breaks by setting up an EV scheme. Naturally, you will still need to be able to afford the lease or payment of a car if one is offered.
If you are an employer, you can offer your staff or directors a clean electric car, which not only ticks all the right green boxes, but is also tax efficient for the employee. From an admin point of view, all you need to do is include it in forms to HMRC (the actual form is called a P11D) just to ensure they don’t chase after you. Your accountant will be able to help with this.
Alternatively, an easier approach is to speak with well-known companies like Octopus Electric Vehicles who can set up an entire salary sacrifice scheme for your business and staff.
What if you are self-employed?
If you are self-employed or the owner of a company, you can still receive a benefit-in-kind too. But it is your responsibility to maintain the records and ensure HMRC is informed. Again, an accountant should be able to help you with this.
How long will government support last?
Whether you currently offer company cars to staff or are looking to in future, you should certainly take advantage of the support for EVs now. They are not only superb cars that are increasingly backed by a strong infrastructure, but also many are choosing to take advantage if you’re not.
It’s difficult to predict when or if one day the government will ease off their financial support given the take-up. As with most things, it is always better to be early than late!