In recent years, electric cars have gained tremendous popularity for their eco-friendliness and cost-efficiency. Not only do they reduce our carbon footprint, but they can also save us money on fuel and maintenance. But did you know that there are tax benefits associated with driving an electric car? In this article, we’ll explain the Benefit in Kind (BIK) tax for electric cars for the tax years 2023/24 and 2024/25, and show you how it can benefit your personal finances.
**What is Benefit in Kind (BIK) Tax?**
Benefit in Kind (BIK) tax is a tax that employees/owner may have to pay if they receive non-cash benefits from their employer. In the context of electric cars, it’s the tax you might have to pay for the personal use of an electric company car provided by your employer.
**BIK Rates for Electric Cars 2023/24 and 2024/25**
The UK government is encouraging the use of electric cars by offering favourable tax rates. For the tax year 2023/24, the BIK rates for electric cars are as follows:
– **Zero Emission Electric Cars**: You’ll pay 2% of the car’s list price as BIK tax.
In the tax year 2024/25, the BIK rates for electric cars are expected to remain favourable staying at 2% fixed rate of the list price of the car.
These rates are significantly lower than those for traditional petrol or diesel cars, making electric cars an attractive option for employees who receive a company electric vehicle.
**Calculating Your BIK Tax Liability**
To calculate your BIK tax liability, you’ll need to know two key pieces of information:
1. **The List Price of the Car**: This is the manufacturer’s recommended retail price (RRP) including any optional extras but excluding the government grant for electric cars.
2. **Your Personal Tax Rate**: Your BIK tax liability is a percentage of the car’s list price based on your personal tax rate.
Here’s a simple example to illustrate how BIK tax works:
Let’s say you’re an employee with a zero-emission electric car with a list price of £30,000 for the tax year 2023/24. If your personal tax rate is 20%, your BIK tax liability for the year would be:
£30,000 (List Price) x 2% (BIK Rate) x 20% (Personal Tax Rate) = £120
So, you would pay £120 as BIK tax for the year.
**Claiming BIK Tax on Your Personal Tax Return**
Your employer will report the BIK tax you owe to HM Revenue and Customs (HMRC), and it will be deducted from your salary through the PAYE system. However, it’s essential to include this information on your personal tax return as well.
When filling out your tax return, you should find a section for employment income, where you can declare any benefits in kind. Make sure to enter the correct BIK amount provided by your employer to ensure accurate taxation.
Benefit in Kind (BIK) tax for electric cars is designed to encourage eco-friendly commuting. The lower tax rates for electric vehicles in the tax years 2023/24 and 2024/25 make driving electric even more appealing. If you have a company electric car, understanding and correctly declaring your BIK tax on your personal tax return can help you save money while contributing to a greener future.
If you want to know more
Please contact Aspire 01942 466024
Or book a call in with us