If you have a company car, switching to electric offers the most dramatic tax savings. The Benefit in Kind (BIK) rate for battery electric vehicles is just 2% for the 2024/25 tax year, compared to up to 37% for petrol and diesel cars.
How BIK Tax Works
Benefit in Kind tax is calculated based on:
- The list price (P11D value) of the car
- The BIK percentage rate based on CO2 emissions
- Your personal income tax rate (20%, 40%, or 45%)
Example Calculation: £40,000 Company Car
| Petrol (37% BIK) | Electric (2% BIK) | |
|---|---|---|
| List Price | £40,000 | £40,000 |
| BIK Rate | 37% | 2% |
| Taxable Benefit | £14,800 | £800 |
| Tax (20% rate) | £2,960/year | £160/year |
| Tax (40% rate) | £5,920/year | £320/year |
| Annual Saving (40%) | - | £5,600 |
Key Takeaway
A 40% taxpayer with a £40,000 electric company car pays just £320/year in BIK tax, compared to £5,920 for an equivalent petrol car. That's a saving of £5,600 per year – over £23,000 over a typical 4-year company car cycle.
Future BIK Rates
The government has announced BIK rates for electric vehicles through to 2027/28:
- 2024/25: 2%
- 2025/26: 3%
- 2026/27: 4%
- 2027/28: 5%
Even with the gradual increases, electric vehicles will remain significantly cheaper than petrol alternatives for company car drivers.
Employer Benefits
Employers also benefit from electric company cars:
- Class 1A NIC savings: Lower taxable benefit means lower employer NICs
- Capital allowances: 100% first-year allowance for electric vehicles
- Corporation tax: Full cost deductible in year of purchase