Martin Lewis gives money-saving advice on VED car tax
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Currently, people who drive electric vehicles as company cars can take advantage of Benefit-in-Kind (BiK) tax. Electric cars have a far smaller BiK tax rate than petrol and diesel alternatives, with the current tax rate at just two percent.
The tax rate for most vehicles under the company car scheme increased in April alongside a number of other tax rises.
While many see this as a great option for people looking to switch, many industry experts remain cautious.
So far, tax brackets have only been announced until 2024 and 2025, where they will remain at two percent.
However, Paul Hollick, the chair of the Association of the Fleet Professionals, fears that the recent scrapping of the Plug-in Car Grant could signal a move away from lower rates for electric vehicles.
He said the scrapping of the grant suggests the Government believes the EV market is strong enough to operate with fewer or even no measures designed to support adoption.
Mr Hollick added: “Fleets have been at the forefront of the electric car revolution and a key factor behind this has been the low benefit-in-kind taxation on offer to drivers, a fraction of that charged to petrol and diesel company car users.
“It’s been a highly successful incentive.
“However, we remain in a situation – which we have been highlighting for some time now – where BIK tables have only been published up until 2024 and 2025, leaving businesses and employees with no indication of what the rate will be for 2025 and 2026 and beyond,” he told Fleet News.
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He added that the loss of the grant is not too significant for fleets as it only applied to a few vehicles.
He was cautious that this could lead to a dramatic increase in BiK rates, potentially costing drivers hundreds of pounds.
It can be seen that drivers may opt against electric vehicles if they can get a petrol or diesel vehicle for a similar tax rate.
He said the temptation “might be strong” especially at a time when public finances are not in the best shape.
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The AFP recognises that taxation on electric vehicles needs to increase but is adamant that it should be implemented in a manner that is gradual and well-signposted.
Mr Hollick continued, saying: “In our opinion, increasing BIK rates too quickly would potentially affect rates of adoption by fleets and even potentially push people back out of electric company cars into private petrol or diesel alternatives.
“There needs to be a fair and equitable approach over time.
“Of course, the whole situation is complicated by the fact that EV supply is currently so poor.”
Anyone who opts for a new company car this year will be affected by the tax rate changes after 2025, if they do change.
The AFP added that it would be “deeply unfair” for the employee to suddenly find dramatic jumps in their taxation during the last years of their contract.
There are fears that this could also threaten the long-term future of electrification in the UK.
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