Martin Lewis gives money-saving advice on VED car tax
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In April, company car tax rates were changed, with drivers seeing costs increase for almost every bracket of vehicle. Benefit-in-Kind (BiK) tax rates changed, rising from one percent to two percent for fully electric vehicles and most petrol and diesel vehicles.
Following this upcoming tax year, the BiK rate will remain at two percent until 2025, although many drivers and experts believe more clarity is needed.
Mike Coulton, EV Consultant at Volkswagen Financial Services UK, highlighted the incentives on offer to drivers, but said more needed to be done to help the UK transition.
Speaking exclusively to Express.co.uk, he said: “I think the Government have done a lot of good things in encouraging EV adoption (PICG, EVHS, WCG, etc.), which can be seen in the EV sales volumes each month.
“My concern is that a lot of these initiatives have now come to an end or have been severely capped, and there is very little clarity around the future.
“Some of it, such as used cars, will of course be driven by market forces.”
Some businesses have said it is hard to plan for the future when they don’t know if prices will drastically change, especially if they lease cars for three or more years.
The company scheme operates as a “salary sacrifice” employee benefit where an employee gives up a small part of their salary in exchange for a brand new, fully electric car.
The salary sacrifice is deducted from their gross salary so the employee will pay less income tax and National Insurance.
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The employer will reduce their bill for national insurance contributions.
According to the Society of Motor Manufacturers and Traders (SMMT), two-thirds of new electric cars were registered to fleets and businesses in 2021.
Mr Coulton added: “However, taking company cars as an example, the current zero-emission car BIK rate of two percent is only confirmed to 2025.
“So, anyone entering into a four-year EV company car or salary sacrifice agreement does not know what tax implications they will face in the fourth year of their contract.
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“Similarly, I think there should be more incentives focussed on encouraging EV adoption in the private and retail sector to make them more affordable.”
Over the past decade, sales across the EV fleet – including battery electric cars (BEVs), plug-in hybrids (PHEVs), range-extended electric cars, and hybrid electric vehicles – have been modest, with accelerated sales volumes only commencing from around 2016.
This increased momentum has intensified over the intervening six years and has further accelerated since the turn of the current decade, with 2021 delivering a significant step change.
Volkswagen Financial Services UK points out that the strong sales performance of EVs during 2021 was notable, especially with an upward trend at the beginning of this year.
Despite this, they warn that “emerging social and economic challenges” could impact the burgeoning EV market, particularly in the short term.
Non-monetary benefits provided by an employer are required to be taxed, which is the BiK tax.
BiK tax is usually much higher for petrol and diesel cars; hence, salary sacrifice on ICE cars has typically not been very popular.
However, BiK rates on electric cars have been set by the Government at an incredibly low percentage up until 2025.
Pure electric cars were not subject to BiK taxes in the financial year between 2020 and 2021, with it being raised last April to one percent.
Recently, many have called on the Government to announce changes to the BiK tax system in the Autumn Budget, which is set to be unveiled in October.
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