02 September 2021


EVs are transforming the status of company cars in terms of HR, risk and funding, salary sacrifice and BIK.

For many years the number of company cars has been in decline, as its status as a perk has dwindled. There are a number of factors for this, including cheap personal contract purchase deals and increased reliability - and so more confidence to step out of the company car scheme into private cars – and the removal of private fuel as a perk for most.

But the main factor has been the increasing benefit-in-kind (BIK) taxation of both petrol and diesel cars. As a result, BIK statistics published by HMRC recently show there were 800,000 company car drivers in 2019/20, down from 870,000 the previous year, and 960,000 in 2015/16.

However, the decline of the company car may be over, industry experts suggest, thanks to the rise of the electric car. A combination of low tax, attractive product, innovative funding methods and the back-up support a company car gives a driver new to electric, mean the low point has been reached, and the curve is on an upward swing.

Harvey Perkins of tax specialists HRUX explains: “We have seen huge interest in electric company cars in the last few years, suggesting that 800,000 may be the low point. But with numerous tax breaks now in place for EVs, and to a lesser degree PHEVs, the company car seems to be back with a bang."

Interim editor of Employee Benefits magazine, Kavitha Sivasubramaniam agrees: “Now that many people are returning to their workplaces as we emerge from the pandemic, there’s definitely the potential for company cars to make a comeback as one of the most popular employee benefits..

In addition, with more electric and hybrid cars taking to the roads, coupled with a greater commitment to opting for more environmentally friendly travel, it’s the ideal time for employers to look again at their company car schemes. Of course, the tax benefits of going electric also make this a more appealing and viable benefit for organisations to offer their staff.

It’s a view shared by the Association of Fleet Professionals (AFP). Its spokesman said: “Right now, many drivers are returning to company cars and choosing an EV, or taking one through salary sacrifice, in large part because of the minimal taxation they pay. This benefits them financially but also helps the Government decarbonise road transport. It is an incentive-and-result approach that is built on trust.

The taxation of electric company cars

Key to the resurgence of the company car will be the taxation position, as Harvey Perkins explains: “In the last five years, the company car tax applied to petrol and diesel vehicles has increased dramatically. This is partly due to the annual increase in the ‘scale charge’ which is based on CO2 emissions, and partially because the way CO2 emissions are measured has become more stringent.

Arguably, this has made the tax and NIC on a conventionally-fuelled petrol or diesel company car far too expensive.

In comparison, the charge for a full EV in the current tax year is just 1% (2% from next April). The Government’s ‘Transitioning to Zero Emission Cars and Vans: 2035 delivery plan’ reconfirms the commitment to keep the company car tax scale charge for full EVs low until April 2025.

But while the tax position is proving attractive to potential company car drivers, there still needs to be more clarity around future BIK rates, the AFP believes. It states: “Many fleets, including AFP members, have long-term plans in place predicated on meeting that date but it is clear we need a stable and predictable taxation environment in order to do so."

The salary sacrifice position

While a traditional company car scheme seems to be proving popular for returning company car drivers, there is also the option of alternative funding schemes such as salary sacrifice, allowing them to receive the perk of a fully funded electric car with low tax.

Harvey Perkins explains how it works: “For salary sacrifice, an employee gives up a contractual entitlement to part of their salary in return for a company car, this could be against the full cost of the car to the employer, or for a ‘contribution’ towards the costs. The gross amount sacrificed reduces employee’s income tax and NIC liability, and employer’s NIC liability. Currently, this only works (from a tax perspective) if the car emits 75g/km of CO2 at the tailpipe, or less.

If we take an example car, such as a Polestar 2 for a 40% taxpayer: the employee would need to sacrifice around £9k GROSS per annum to cover for rental, maintenance, insurance, company car tax and early termination cover, which in NET terms is only £463 per month.

The employer makes an annual saving in NI of £1.2k, which they could choose to share with the employee to lower their net monthly costs further."

Other tax breaks and financial benefits

In additional to the company car tax and NIC, there are various reliefs available which can help businesses and drivers fund PHEVs and BEVs as a company car.

These include:

  • First Year Allowance: between 1st April 2020 and 1 April 2025, when a company buys a brand-new electric car outright, it will qualify for 100% first-year allowance.
  • Electric Vehicle Homecharge Scheme: a grant towards the cost of installing a charger at home. This is capped at 75% of the cost of installation, or £350.
  • Workplace Charging Scheme: a grant towards the cost of installing up to 40 sockets. This is capped at 75% of the cost of installation, or £350.
  • Electric vehicles do not suffer the 15% leasing disallowance.
  • Fully electric vehicles with a list price under £35,000 receive a Government grant of £2,500 off the price of brand-new car.

So is the company car making a comeback?

Because of the delay in reporting of BIK numbers for any given year, the slowdown in registrations as a result of Covid-19, and the lower volumes of electric cars currently available, it is too early to give definitive statistics showing the increase in company cars.

But anecdotal evidence among fleet vehicle providers and the levels of interest being reported suggest the upswing is happening, and that it is only a matter of time before the electric company car is an essential business perk.

Indeed, the British Vehicle Rental and Leasing Association’s says it will see the fleet sector registering 400,000 BEVs per year by 2025, making it responsible for 80% of new battery electric car and van sales, suggesting the company car is making a comeback - and it will be electric.

Share this article

Key points