Electric Car Benefit in Kind (BiK) Salary Sacrifice Guide
Benefit in Kind or BIK tax is a tax levied on the company benefits given to an employee, over and above their salary.
This topic can be complex, especially concerning electric car salary sacrifice. Therefore, we have created a guide on BiK, detailing what it is, the associated costs, and a comparison between EVs and traditional petrol cars.
What is Electric Car Benefit in Kind (BiK)?
The Company Car Tax also known as the Benefit In Kind (BIK) tax for cars is calculated based on three factors.
First, consider the level of CO2 emissions produced by a car, of which an electric vehicle will have none, as it doesn’t produce any emissions. Secondly, assess the P11D value of the car, which represents its on-road price. Third, take into account your personal tax bracket.
Here are some important things to note about Benefit in Kind and electric cars:
HM Treasury establishes the BiK tax rate, and it's generally taken out of your salary through PAYE (pay-as-you-earn).
Selecting a zero-emissions plug-in vehicle (i.e., an electric car) instead of a traditional petrol or diesel car can lead to significant savings.
Currently, the BiK rates make electric cars and efficient plug-in hybrids attractive because the company car tax on electric vehicles is considerably lower.
How does BiK work at The Electric Car Scheme?
In The Electric Car Scheme’s case, the company benefit we provide is a brand new, heavily discounted electric car. From HMRC’s perspective, this is different or supplementary to your gross salary and so you have to pay BiK tax because you are receiving an additional benefit.
How do I calculate how much BiK I owe?
It is easy to calculate how much Benefit in Kind tax you owe by following the formula:
P11D value of the car ✕ the BIK rate ✕ your income tax bracket = BIK tax owed
What is the current BiK rate for electric vehicles?
Jeremy Hunt, The Chancellor of the Exchequer, shared in the 2024 Spring Budget announcement that he's keeping company car tax rates lower for electric vehicles. He's also made a promise to limit tax rate increases to just 1% per year for three years, starting in 2025.
In practical terms, this means that in 2025, the Company Car Tax (or Benefit-in-Kind tax) will go up by 1%, moving from 2% to 3%. After that, it will increase by 1% each year, reaching 5% by 2028. Previously, it was expected to jump straight to 5% from 2025 onward, and we calculated your tax savings with this assumption to ensure you wouldn't face surprises.
For customers with car leases extending into 2025 and beyond, this is fantastic news. Let's take an example: if you lease a new electric car valued at £40,000 and fall under the 40% tax rate, you'll now save an extra £320 if you keep the car for the full year. That's great news for your wallet!
What is the BiK tax for petrol and diesel cars?
In comparison, the BIK tax levied upon highly polluting internal combustion engine cars can go as high as 37%. The low BIK rate has opened up the potential for drivers to make significant savings when buying an electric car, whereas petrol and diesel cars are becoming less affordable to run due to their higher BIK rate and running costs. Interestingly, hybrid cars don’t enjoy a BIK rate as low as electric cars, some plug-in hybrid cars pay a BIK rate as high as 12%.
All of this is to say, that salary sacrificing an electric car makes financial sense, in addition to being a cleaner alternative to fossil fuels.
What is the list price of a P11D for cars?
The P11D company car value is the vehicle’s list price, including VAT and charges of delivery, excluding registration and tax. The P11D company car value does not change. This is because we only use P11D that the manufacturer quotes.
UK Benefit in Kind (BiK) - Electric Car Tax Bands & BIK Rates
The tables below illustrate future Benefit-in-Kind (BIK) tax bands based on your vehicle's CO2 emissions.
You can use this information to figure out the company car tax rate that will apply to your vehicle. Alternatively, you can simplify the process by using The Electric Car Scheme quote tool, where we'll handle the calculations for you.
HMRC determines the BIK bands, and they are linked to a vehicle's CO2 emissions. For electric or alternative fuel cars with zero CO2 emissions, a specific rate applies. If you drive a hybrid car emitting less than 50g/km, the rate is determined by its zero-emissions range—the distance it can travel on electric power before needing a recharge.
The government outlined company car tax rates until April 2028 in the 2022 Autumn Statement.
At The Electric Car Scheme, we are working towards an assumption that the BiK rate in 2028/9 will increase by one percentage point year-on-year to 6% and the same will happen in 2029/30 (increasing to 7%).
| CO2 (g/km) | Electric Range | 2022-23 (%) | 2023-24 (%) | 2024-25 (%) | 2025-26 (%) | 2026-27 (%) | 2027-28 (%) |
|---|---|---|---|---|---|---|---|
| 0 | N/A | 2 | 2 | 2 | 3 | 4 | 5 |
| 1-50 | >130 | 2 | 2 | 2 | 3 | 4 | 5 |
| 1-50 | 70-129 | 5 | 5 | 5 | 6 | 7 | 8 |
| 1-50 | 40-69 | 8 | 8 | 8 | 9 | 10 | 11 |
| 1-50 | 30-39 | 12 | 12 | 12 | 13 | 14 | 15 |
| 1-50 | <30 | 14 | 14 | 14 | 15 | 16 | 17 |
| 51-54 | 15 | 15 | 15 | 16 | 17 | 18 | |
| 55-59 | 16 | 16 | 16 | 17 | 18 | 19 | |
| 60-64 | 17 | 17 | 17 | 18 | 19 | 20 | |
| 65-69 | 18 | 18 | 18 | 19 | 20 | 21 | |
| 70-74 | 19 | 19 | 19 | 20 | 21 | 21 | |
| 75-79 | 20 | 20 | 20 | 21 | 21 | 21 | |
| 80-84 | 21 | 21 | 21 | 22 | 22 | 22 | |
| 85-89 | 22 | 22 | 22 | 23 | 23 | 23 | |
| 90-94 | 23 | 23 | 23 | 24 | 24 | 24 | |
| 95-99 | 24 | 24 | 24 | 25 | 25 | 25 | |
| 100-104 | 25 | 25 | 25 | 26 | 26 | 26 | |
| 105-109 | 26 | 26 | 26 | 27 | 27 | 27 | |
| 110-114 | 27 | 27 | 27 | 28 | 28 | 28 | |
| 115-119 | 28 | 28 | 28 | 29 | 29 | 29 | |
| 120-124 | 29 | 29 | 29 | 30 | 30 | 30 | |
| 125-129 | 30 | 30 | 30 | 31 | 31 | 31 | |
| 130-134 | 31 | 31 | 31 | 32 | 32 | 32 | |
| 135-139 | 32 | 32 | 32 | 33 | 33 | 33 | |
| 140-144 | 33 | 33 | 33 | 34 | 34 | 34 | |
| 145-149 | 34 | 34 | 34 | 35 | 35 | 35 | |
| 150-154 | 35 | 35 | 35 | 36 | 36 | 36 | |
| 155-159 | 36 | 36 | 36 | 37 | 37 | 37 | |
| 160-164 | 37 | 37 | 37 | 37 | 37 | 37 | |
| 165-169 | 37 | 37 | 37 | 37 | 37 | 37 | |
| 170+ | 37 | 37 | 37 | 37 | 37 | 37 |
Income Tax rates and bands
The amount of Income Tax you pay each tax year is determined by two main factors:
The portion of your income that exceeds your Personal Allowance.
The segments of your income that fall into each tax band.
The table below shows the tax rates you pay in each band if you have a standard Personal Allowance of £12,570.
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
How much electric car BIK tax do you pay?
Below are some examples of some of the most popular electric cars and how much benefit-in-kind tax you can expect to pay:
Tesla Model 3 RWD from £510 per month with electric car salary sacrifice
Note: Pricing shown is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, 40% tax rate payer and are inclusive of Maintenance and Breakdown Cover.
If you decide to use The Electric Car Scheme to lease a Tesla Model 3 LR RWD, you'll pay £510 each month. By doing this, you'll save £340 in taxes and insurance. However, you'll need to pay £40 towards Benefit in Kind (BIK). It's essential to know that BIK taxes have been high in the past, reducing the benefits. If you want to learn more about salary sacrificing the brand new Tesla Model 3 Highland it’s worth checking out our recent blog post.
MG4 Long Range 64kWh from £285 per month with electric car salary sacrifice
Note: Pricing shown is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, 40% tax rate payer and are inclusive of Maintenance and Breakdown Cover.
If you choose to salary sacrifice the MG4 Long Range 64kWh, your monthly cost will be £440. The Electric Car Scheme ensures you get the best lease deal available, which is currently £285 per month as of this blog. This means you save £185 on taxes and insurance, but there's a small £29 BIK tax to pay. This is unquestionably the most affordable way to get an MG4, and it will stay that way as long as BIK rates remain extremely low.
For leases spanning into 2028/9, we (at The Electric Car Scheme) are working an assumed BiK rate of 6% for 2028/29, increasing by one percentage point annually thereafter. This will impact our customers' take-home pay according to the actual BiK rates determined.
BIK comparison of an electric car vs a petrol car from October 2023
| Vehicle | Tesla Model 3 RWD | BMW 3 Series M Sport |
|---|---|---|
| P11D Value | £39,990 | £57,075 |
| 0-60 mph | 5.8 seconds | 4.2 seconds |
| Emissions | 0 gCO2 /km | 270 gCO2 /km |
| 2024-2025 Monthly BiK Cost | £22.60 per month | £703 per month |
We've compared the tax you pay for having an electric car, like the Tesla Model 3 RWD, with a high-performance petrol car, the BMW 3-series M Sport. They're similar in price and speed.
Here's the key point: the Tesla Model Y is fully electric, so it doesn't produce any emissions, while the BMW 3-Series emits 270g of CO2 per kilometre. Because of this, the tax you pay for the Tesla is less than what you'd pay for the BMW. And keep in mind, this comparison doesn't even consider the monthly leasing costs for these cars. This shows why choosing a salary sacrifice with an electric car is an excellent choice right now.
What are the Company Car BIK Rates 2020 - 2024
As of 2023, company car tax rates in the UK have been determined by the environmental impact of the cars. Here's a breakdown:
Petrol and Diesel Cars
Petrol and diesel cars that meet specific emission standards begin with a tax rate of 22%.
This rate can increase in 1% increments as the car's CO2 emissions rise, but it does not exceed 37%.
However, since April 2018, an additional 4% tax has been levied on diesel cars that do not meet particular emissions standards (most diesel cars fall into this category).
Hybrid Cars
Hybrid cars generally have lower CO2 emissions, resulting in reduced tax rates.
Most hybrid cars benefit from a tax rate at least 2% lower than regular petrol or diesel cars.
Importantly, diesel hybrids are exempt from the 4% diesel tax, as they are considered "alternatively fueled vehicles" for tax purposes.
Electric Cars
Electric vehicles enjoy the lowest tax rates.
For the 2019/20 financial year, electric cars were taxed at 16%, but this rate decreased to 0% in 2020/21.
In 2024, the BIK remains at 2%.
Plug-In Models
Starting from April 2020, there are new tax bands for plug-in models based on their CO2 emissions and electric-only range.
If a plug-in model has an electric-only range of over 130 miles, it's considered a pure electric vehicle and is taxed at 0%.
Plug-in models with an electric-only range of less than 30 miles are taxed at 14%.
Will the VAT on public charging change?
The VAT difference between EV charging on a public network vs charging at home has been a contention point for many drivers who do not have off-street parking. The House of Lords recently called for the 20% VAT tax rate applied to public charging to be reduced to 5% in line with domestic EV charging. The Government has ruled out any change because it would put additional pressure on “public finances to which VAT makes a significant contribution.”
Workplace charging
In response to concerns about the rollout of workplace charging, highlighted in a report by the House of Commons, the Government has said that over the coming year, it will assess the impact grants have on the market and consider if future incentives are proportionate.
The report referenced had called for the Government to gather data on the availability of workplace charge points and consult on mandating workplaces with designated car parking spaces, and more than a certain number of employees, to install charge points using the grant. The response from the Government was that it has certain requirements for the minimum levels of EV charging infrastructure in existing non-residential car parks as a part of the Future of Transport Regulatory Review.
At The Electric Car Scheme, We've teamed up with EVC and Connected Kerb to make it simple for businesses to set up charging stations at their workplaces. These partners specialise in office charging and offer a variety of customised solutions. They can assist with advice, design, installation, funding, and even the operation and maintenance of workplace chargers, tailoring the approach to what suits you best. You can learn more about it on our Office Charging webpage.
Are there any incentives for used EVs and battery health?
The Government says some EVs on the used car market are now similar in price to petrol and diesel counterparts and that they will address potential failures in the market later down the line.
The report, mentioned previously, called for the Government to accelerate its collaboration with the industry regarding battery health to develop a battery that is objective and reliable. The Government agreed with this recommendation and has worked with other Governments to develop a Global Technical Regulation on EV batteries to set minimum durability and lifespan standards.
The Electric Car Scheme’s BiK assumptions beyond 2027/28
As mentioned earlier, BiK rates will be 3% for 2025/26, 4% for 2026/27, and 5% for 2027/28. At The Electric Car Scheme, we've established working assumptions for BiK rates beyond 2027/28 to provide vehicle certainty for our customers with leases extending past this point.
Our working assumption is:
2028/9 - 6% BiK rate
2029/30 - 7% BiK rate
This is, of course, subject to change and is an assumption. Tax estimates for our customers will assume the BiK rate in 2028/9 is set at 6% and increments by a percentage point each year following. This will ultimately change our customers’ take-home pay depending on the actual BiK rates set.
Electric car owners will have to pay road tax from 2025
Starting in 2025, electric car owners will need to pay vehicle excise duty (road tax), as announced by the chancellor. Currently, zero-emission vehicles are exempt from this tax, but the new rule will change that.
For the first year, electric cars will be charged the lowest band for new cars, which is currently £10. After that initial year, they will pay the same rate as other vehicles. The annual road tax for electric cars will be £165.
If you're on a 4-year lease that extends into 2025, you may face a potential cost of £165. However, you can use The Electric Car Scheme to pay for this from your gross salary. While this might offset some of the Benefit-in-Kind (BIK) savings, overall, you are still likely to save more than you initially expected!
What do we think about EV tax at The Electric Car Scheme?
Thom Groot, CEO & Co-Founder of The Electric Car Scheme, said the certainty was useful but a longer period of lower taxes would help to spur more people into electric cars.
“It’s great to finally have some clarity on the BIK rates for electric cars, which was set to make a massive jump in 2025. My company was created to help businesses provide electric cars for their employees.“
“Before the Autumn Statement, we had no clarity on whether the BIK rate would stay at 2% or make a huge jump to 25%. Now we know it will rise by 1% every year from 2025. This clarity is key as much of the company car market is made up of three or four-year leases – meaning the uncertainty was stopping people from making the right choice and getting into a clean company car. At The Electric Car Scheme, we are working on an assumption that in 2028/9 this will increase to 6% and by a percentage point incrementally year-on-year.”
“While the clarity is useful, it makes no sense to hike the tax in the first place. Keeping it low costs the Government next to nothing – less than one-tenth of one percentage of the annual tax taken in recent years – and yet it helps to get people into electric cars. We would have preferred an extension to 2030 – as Germany has done with its similar tax rate – or 2035. ”
“Despite rosy forecasts from the OBR on electric car pickup in 2025, they still only make up about 1% of the total car fleet, and only 15% of new car sales in October, meaning fossil full cars are still outselling them six to one. “
“Growing the electric company car market is good for everyone because today’s company cars are tomorrow’s second-hand vehicles.“
“We do understand the need to charge road tax from electric car owners to keep roads maintained (we all use them after all), so are not against the move to increase VED rates.”
Are you interested in saving 30-60% on any electric car?
If you want to find out how much tax you'll need to pay for having an electric car through The Electric Car Scheme, you can check our convenient online calculator here. We can help you lease any electric car available, and with our tool, you can figure out both the amount you'll save on employee tax and national insurance and the Benefit-in-Kind (BIK) tax you'll owe.
Book a call with our Business Development team here.
Last reviewed: 20/05/24
Next review scheduled: 20/11/24
Our pricing is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, and are inclusive of Maintenance and Breakdown Cover. The Electric Car Scheme’s terms and conditions apply. All deals are subject to credit approval and availability. All deals are subject to excess mileage and damage charges. Prices are calculated based on the following tax saving assumptions; England & Wales, 40% tax rate. The above prices were calculated using a flat payment profile. The Electric Car Scheme Limited provides services for the administration of your salary sacrifice employee benefits. The Electric Car Scheme Holdings Limited is a member of the BVRLA (10608), is authorised and regulated by the FCA under FRN 968270, is an Appointed Representative of Marshall Management Services Ltd under FRN 667174, and is a credit broker and not a lender or insurance provider.
