If you have an electric company car through your employer, you may have heard the term BIK, or Benefit in Kind. But what does BIK actually mean, how is it calculated, and why are electric company cars currently so attractive from a tax perspective?
BIK on an electric company car is the tax an employee may pay when their employer provides a vehicle that can also be used privately. The amount depends on the car’s list price, its BIK tax rate and the employee’s income tax rate.
For many drivers, fully electric company cars can offer a significant tax advantage compared with petrol or diesel vehicles because electric cars have a much lower BIK percentage.
In this guide, we’ll explain what BIK is on an electric company car, how the calculation works, what affects the amount you pay, and what businesses and employees should consider when choosing an EV.
What does BIK mean?
BIK stands for Benefit in Kind.
A Benefit in Kind is something provided by an employer that has a personal benefit or value to an employee. A company car is one of the most common examples.
If your employer provides you with an electric company car and you are allowed to use it privately, HMRC generally treats that private benefit as taxable.
Instead of paying tax on the actual monthly lease payment, the tax calculation is based on the vehicle’s taxable value.
This is why two electric cars with very different monthly lease prices can sometimes have relatively similar BIK tax costs.
What is BIK on an electric company car?
The BIK tax on an electric company car is calculated using a percentage of the vehicle’s P11D value.
The basic calculation is:
P11D value × BIK percentage = taxable benefit
The taxable benefit is then multiplied by your personal income tax rate.
For example, if an electric car had a P11D value of £40,000 and a BIK rate of 4%, the taxable benefit would be:
£40,000 × 4% = £1,600
A basic-rate taxpayer would then pay tax based on that £1,600 benefit, while a higher-rate taxpayer would pay more.
The important point is that you don’t pay the full BIK amount. The figure represents the value of the benefit that is added to your taxable income.
Why are electric company cars so tax efficient?
Electric vehicles have historically benefited from very low company-car BIK rates.
This was designed to encourage businesses and employees to move away from higher-emission vehicles.
Compared with petrol and diesel company cars, a fully electric vehicle can therefore provide a much lower taxable benefit.
For an employee choosing between a traditional petrol company car and a fully electric company car, the difference in monthly tax can be substantial.
This is one of the main reasons electric company cars have become increasingly popular with businesses.
How is electric car BIK calculated?
There are several figures you need to understand when calculating BIK.
1. The P11D value
The P11D value is broadly based on the manufacturer’s list price of the car, including certain factory-fitted options and VAT.
It is not necessarily the price your business actually pays for the vehicle.
This is important because a heavily discounted company car can still have a relatively high taxable value.
2. The BIK percentage
The government sets company-car tax rates according to factors including the vehicle’s emissions.
Fully electric vehicles have a specific BIK percentage that is considerably lower than many petrol and diesel cars.
3. Your income tax rate
Your personal tax rate also affects the amount of tax you actually pay.
A basic-rate taxpayer and a higher-rate taxpayer with the same electric company car will therefore normally pay different amounts of BIK tax.
Electric company car BIK example
Let’s look at a simplified example.
Imagine an electric company car with a P11D value of:
£45,000
If the applicable BIK percentage were:
4%
The taxable benefit would be:
£45,000 × 4% = £1,800
A basic-rate taxpayer would pay income tax on the £1,800 benefit at their applicable rate.
A higher-rate taxpayer would pay more because their income tax rate is higher.
This is why it’s important to look at the monthly BIK tax, rather than simply looking at the car’s list price.
Does the monthly lease price affect BIK?
Generally, the monthly business lease payment isn’t what determines your company-car BIK.
This can sometimes be confusing.
A business might lease an electric car for a competitive monthly rental, but the employee’s BIK calculation is based on the vehicle’s taxable value and the relevant tax percentage.
The lease payment and the BIK calculation are therefore two separate considerations.
For the business, the monthly lease cost is important.
For the employee, the BIK tax cost is usually the key figure to consider.
Is BIK cheaper on an electric car than petrol or diesel?
In many cases, yes.
This is one of the biggest advantages of choosing a fully electric company car.
Petrol and diesel vehicles are generally subject to higher company-car tax rates because their BIK percentages are linked to their emissions.
A fully electric vehicle has zero tailpipe CO₂ emissions.
As a result, its BIK percentage can be considerably lower than an equivalent petrol or diesel company car.
This can make an EV particularly attractive for employees who use their company car for both business and personal journeys.
Who pays the BIK tax?
The employee generally pays the personal tax associated with the Benefit in Kind.
The employer reports the benefit to HMRC.
Depending on how the employer administers company-car benefits, the tax can be collected through PAYE or dealt with through HMRC’s tax code arrangements.
The business may also have its own tax and accounting considerations associated with providing the company car.
Does an employer pay BIK?
The term BIK is often used to describe the employee’s company-car tax, but there can also be employer National Insurance implications associated with providing taxable benefits.
Therefore, a company providing electric cars should consider both:
- The employee’s BIK tax
- Employer National Insurance
- The cost of leasing or purchasing the vehicle
- VAT treatment
- Corporation tax
- Charging costs
- Insurance and maintenance
- Business mileage
The tax advantages of an EV can therefore benefit both the employee and the business, although the exact position depends on the company’s circumstances.
Do electric company cars have zero BIK?
No.
This is an important distinction.
Electric company cars are not completely exempt from BIK tax.
Instead, they have benefited from very low BIK percentages.
The government has also announced future changes to company-car tax rates, so businesses and employees should avoid assuming that today’s percentage will remain unchanged indefinitely.
If you’re choosing a company car for a longer lease, it’s sensible to consider how the BIK rate may change during the contract.
What is the BIK rate for electric cars?
The BIK percentage for electric company cars is set by the government and can change between tax years.
For this reason, the exact percentage applicable to a particular vehicle depends on the tax year in which you are assessing the benefit.
The rate should always be checked against the latest HMRC guidance before making a financial decision.
The important principle is that fully electric cars remain among the most tax-efficient company-car options compared with many higher-emission vehicles.
Do hybrid company cars get the same BIK treatment?
Not necessarily.
Plug-in hybrid vehicles are assessed differently from fully electric cars.
For many plug-in hybrids, the BIK percentage depends partly on their official CO₂ emissions and electric-only range.
This means two plug-in hybrids can have different BIK rates even if they look similar on paper.
If your priority is keeping company-car BIK as low as possible, it’s worth comparing:
- Fully electric vehicles
- Plug-in hybrids
- Petrol vehicles
- Diesel vehicles
rather than assuming every electrified vehicle has the same tax treatment.
Electric company car BIK and salary sacrifice
Electric vehicles are also popular through salary sacrifice schemes.
Under a salary sacrifice arrangement, an employee gives up part of their gross salary in exchange for a benefit, such as a company car.
Electric vehicles can work particularly well within salary sacrifice because of their favourable company-car tax treatment.
However, salary sacrifice and business car leasing are not exactly the same thing.
The employer needs to operate an appropriate scheme, and the employee’s circumstances need to be considered carefully.
Can directors get an electric company car?
Yes.
A director of a limited company can potentially have an electric company car provided by the business.
The tax treatment depends on how the vehicle is provided and how it is used.
If the vehicle is available for private use, a Benefit in Kind can arise.
For directors considering an EV, it is therefore worth comparing the total cost to the company with the personal BIK tax payable by the director.
Can a limited company lease an electric car?
Yes.
A limited company can potentially lease an electric vehicle for business use, subject to finance approval and the relevant lease terms.
Business EV leasing can provide businesses with:
- A predictable monthly cost
- Access to new electric vehicles
- Reduced upfront expenditure compared with purchasing
- Potential tax advantages
- Lower running costs
- Access to modern EV technology
However, the VAT and tax treatment depends on the individual circumstances of the business and vehicle.
A company should take professional tax advice where necessary.
Can I use an electric company car privately?
Yes, private use is one of the main reasons BIK exists.
Private use can include journeys that aren’t strictly business journeys, such as:
- Commuting
- Shopping
- Family trips
- Holidays
- Personal appointments
If an employer provides a company car that is available for private use, a taxable benefit can arise.
Does commuting count as private use?
Generally, ordinary commuting between home and a permanent workplace is treated differently from business mileage.
For company-car BIK purposes, the availability of the vehicle for private use is important.
This is another reason why employers should have clear company-car policies covering permitted use.
What happens if I only use the electric car for business?
If a vehicle is genuinely restricted to business use and is not available for private use, the tax position can be different.
However, the exact circumstances matter.
Employers should keep appropriate records and take professional advice if they are relying on business-only use to determine the tax treatment.
Simply describing a vehicle as a “business car” does not automatically remove BIK.
Does the employee pay for charging?
It depends on the arrangement.
An employer may provide charging facilities at the workplace or reimburse certain business mileage.
Employees may also charge at home.
The tax treatment of charging costs can vary depending on who owns the vehicle, where it is charged and whether the journey is business or private.
For company EV drivers, it’s therefore worth agreeing a clear charging and mileage policy with the employer.
What about home charging?
Home charging is one of the biggest practical advantages of an electric company car.
An employee may be able to charge overnight at home, meaning the car is ready for the next morning.
Businesses should consider how home charging costs are handled and whether a home charging point can be provided.
The tax treatment can depend on the exact arrangement, so businesses should check the current HMRC rules.
Does BIK apply to electric vans?
Electric vans are treated differently from electric cars.
If your business is considering an electric van, don’t simply use the company-car BIK calculation.
There are separate rules for company vans and private use.
This can make electric vans particularly interesting for businesses that need commercial vehicles.
Electric car BIK vs buying your own car
One of the key advantages of a company car is that the employer is providing the vehicle.
You don’t necessarily have to purchase the car personally or take out your own personal finance agreement.
Instead, the business provides the vehicle and you pay the relevant personal tax on the benefit.
For an electric vehicle with a low BIK percentage, this can be an attractive alternative to buying and running a car personally.
However, the right option depends on salary, tax rate, mileage, vehicle choice and the employer’s company-car policy.
What should businesses consider before choosing an electric company car?
BIK shouldn’t be the only consideration.
A company should look at the complete cost of running the vehicle.
Consider:
Vehicle cost
What is the lease rental or purchase price?
BIK
How much tax will the employee pay?
Charging
Where will the vehicle be charged and who pays?
Mileage
How many miles will the employee travel each year?
Maintenance
Is servicing included in the lease?
Insurance
Who provides and pays for insurance?
Tax
What are the VAT and corporation-tax implications?
Contract length
How long will the vehicle be required?
Looking at the complete picture will give you a much better idea of the true cost.
What makes a good electric company car?
When choosing an EV for an employee, don’t focus solely on BIK.
A good company car should also suit the employee’s lifestyle.
Consider:
- Real-world driving range
- Charging speed
- Boot space
- Passenger space
- Comfort
- Technology
- Safety
- Annual mileage
- Workplace charging
- Home charging
- Business mileage
- Lease cost
For example, an employee travelling hundreds of miles each week may need a very different EV from someone who mainly drives locally.
Common mistakes when calculating electric company car BIK
1. Assuming BIK is based on the lease payment
It isn’t simply calculated from the monthly lease rental.
2. Assuming all EVs have the same BIK
The taxable benefit also depends on the vehicle’s value.
3. Forgetting about the P11D value
A high-specification EV can have a higher taxable value.
4. Ignoring future tax changes
BIK rates can change between tax years.
5. Assuming every hybrid has the same tax treatment
Plug-in hybrids can have different rates depending on their emissions and electric range.
6. Looking only at the employee’s tax
The employer also needs to consider the overall cost of providing the vehicle.
Electric company car BIK FAQs
What does BIK stand for?
BIK stands for Benefit in Kind. It is the tax treatment applied when an employer provides an employee with certain benefits, such as a company car that is available for private use.
Is BIK cheaper on electric cars?
Generally, electric company cars have much lower BIK rates than many petrol and diesel vehicles, making them an attractive company-car option.
Do you pay BIK on a fully electric car?
Yes. Fully electric cars are not automatically exempt from BIK. However, their BIK rates are significantly lower than many higher-emission vehicles.
How is electric car BIK calculated?
The basic calculation uses the vehicle’s P11D value multiplied by the applicable BIK percentage. The resulting taxable benefit is then subject to the employee’s income tax rate.
Does the lease price affect BIK?
The monthly lease rental isn’t normally the figure used to calculate company-car BIK. The calculation is based primarily on the vehicle’s taxable value and applicable BIK percentage.
Can a director have an electric company car?
Yes. A director can potentially have an electric company car provided by their limited company, although the relevant tax treatment depends on the circumstances.
Can I use my electric company car privately?
Yes. Company cars can generally be used privately if the employer allows it. Private availability is one of the factors that can create a taxable Benefit in Kind.
Are electric company cars still tax efficient?
Yes. Electric company cars remain an attractive option for many employees because their BIK treatment can be significantly more favourable than petrol and diesel alternatives.
Is an electric company car worth it?
For many employees, yes.
The combination of low-emission motoring, potentially lower running costs and favourable company-car tax treatment makes electric vehicles an increasingly popular choice.
For employers, an EV company-car scheme can also help provide employees with an attractive benefit while supporting a transition towards lower-emission vehicles.
However, the best vehicle will depend on the employee’s salary, tax rate, mileage, charging situation and the company’s budget.
Final thoughts: What is BIK on an electric company car?
So, what is BIK on an electric company car?
BIK is the tax an employee can pay when their employer provides a company car that is available for private use. The taxable benefit is calculated using the vehicle’s P11D value and the applicable BIK percentage.
Electric cars have historically benefited from low BIK rates, which can make them considerably more tax-efficient than many petrol and diesel company cars.
If you’re a business owner, director or employee considering an electric company car, don’t just compare monthly lease prices. Look at the whole cost, including BIK, charging, mileage, maintenance, insurance and the vehicle’s tax position.
Want to explore electric company car leasing? Car Lease 4 U can help businesses and individuals compare suitable leasing options and understand the different routes available.
Get in touch today to discuss your next electric company car.