Employee and employer both pay tax & corporation tax return on company cars. The car will have a taxable value based on its value, benefit in kind tax and its CO2 emissions.
Employee: Employees will have to pay income tax based on the tax band they are in. The calculation for employee tax will be based on (P11d value) * (BIK Band) * (Tax band)
Employer: The company will have to pay Class 1A National Insurance contributions of 13.8% on the taxable value of cars and fuel given to employees.
BIK tax bands are based on CO2 emissions of your vehicle. Higher the CO2 emission higher the tax. Until April last year, electric cars were subject to 16% BIK tax. However, it was reduced to 0% in April 2020, rising to 1% in April 2021 and 2% in April 2022. We do not yet know what the tax bands will be beyond then. However, the government Corporation tax return team has committed to providing information on new BIK tax bands two years in advance, “to provide certainty for employers, employees and fleet operators.
In addition to the benefits, you will also save on the corporation tax bill. Some low emissions cars are available for 100% first-year allowance which means you can use the purchase of the car to reduce the profits of your company and save corporation tax. You may also be able to lease the car and use the lease payments to offset profits and reduce corporation tax return liability.
Tips for self-employed
If you buy an electric business vehicle personally, you can claim 45p per mile as a business travel expense, despite the cost of an electric vehicle being an estimated 4p per mile.
