Car rates

Car tax changes: Drivers risk ‘implications’ without government action before electric vehicle switch

In April company car tax rates were changed as drivers saw rising costs for almost all vehicle tiers. Benefit-in-kind (BiK) tax rates have changed from 1% to 2% for fully electric vehicles and most petrol and diesel vehicles.

After this next tax year, the BiK rate will remain at 2% until 2025, although many drivers and experts believe greater clarity is needed.

Mike Coulton, EV consultant at Volkswagen Financial Services UK, highlighted the incentives offered to drivers, but said more needed to be done to help the transition in the UK.

Speaking exclusively to, he said: “I think the government has done a lot of good things in encouraging the uptake of electric vehicles (PICG, EVHS, WCG etc.) which shows in electric vehicle sales volumes each month.

“My concern is that many of these initiatives have now come to an end or have been severely capped, and there is very little clarity as to the future.

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The employer will reduce his social contribution bill.

According to the Society of Motor Manufacturers and Traders (SMMT), two-thirds of new electric cars were registered with fleets and businesses in 2021.

Mr Coulton added: “However, taking company cars as an example, the current BIK rate of zero-emission cars of 2% is only confirmed until 2025.

“So anyone entering into a four-year company car or wage sacrifice deal doesn’t know what tax implications they will face in the fourth year of their contract.

“Similarly, I think there should be more incentives aimed at encouraging the adoption of electric vehicles in the private sector and the retail sector to make them more affordable.”

Over the past decade, fleet sales of electric vehicles – including battery electric cars (BEVs), plug-in hybrids (PHEVs), range-extended electric cars and hybrid electric vehicles – have been modest, the acceleration in sales volumes only starting from around 2016.

This heightened momentum has intensified over the ensuing six years and has accelerated further since the turn of the current decade, with 2021 bringing a significant sea change.

Volkswagen Financial Services UK points out that the strong performance of electric vehicle sales in 2021 has been notable, especially with an upward trend at the start of this year.

Despite this, they warn that “emerging social and economic challenges” could impact the booming electric vehicle market, especially in the short term.

Non-monetary benefits provided by an employer must be taxed, i.e. BiK tax.

The BiK tax is generally much higher for petrol and diesel cars; therefore, the wage sacrifice on ICE cars has generally not been very popular.

However, BiK tariffs on electric cars have been set by the government at an incredibly low percentage until 2025.

Pure electric cars were not subject to BiK taxes in the fiscal year between 2020 and 2021, which were raised to 1% last April.

Recently, many have called on the government to announce changes to BiK’s tax system in the fall budget, which is expected to be unveiled in October.