Car tax changes: One percent increase could see costs rise by almost £400 within months

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Car tax benefit in kind (BiK) rates for electric models were dropped from 16 percent to zero in April this year to encourage more drivers to switch to eco-friendly vehicles. The updates ensured thousands of electric car owners paid no BiK tax to use an electric model if they secured the car through a salary sacrifice scheme.

However, the charges will increase to one percent for zero-emission models from 2021 which could see some road users fork out hundreds of extra pounds.

The new one percent charge will be based on income levels and the overall value of the electric car.

This means more expensive vehicles will come with higher costs and could see some drivers pay almost £400 per year.

They say Tesla Model S Performance owners who pay 40 percent income tax could see their BiK shares soar to £32.26 per month.

This would see overall annual costs rise to £387.12 in what could be a daunting charge after a year of financial uncertainty.

Costs will be cheaper for owners of slightly cheaper electric models but will still be more than they currently pay.

Pod Point says a £29,790 Nissan Leaf model would have a BiK value of £297.90.

This charge would then be multiplied by each driver’s own income tax level meaning those with just 20 percent tax would pay just £59.58 per year.

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This would increase to £119.16 per year for those who pay 40 percent income tax and £134.06 per year for those on 45 percent income tax.

Charges will rise a further one percent in 2022 before costs will then be frozen for an additional two years.

However, the BiK charges are still cheaper than usual leasing rates with some drivers saving between 30 and 40 percent.

Electric car specialists at Octopus Electric Vehicles have revealed EV leasing has surged under the new proposals as motorists desperately switch to electric models.

The firm says orders through their salary sacrifice scheme have increased five-fold since April as drivers make the most of the savings.

The electric car market has had a bumper 2020 with regulations for new fully electric models up by 168 percent.

Fiona Howarth, CEO of Octopus Electric Vehicles said the new changes had been a “game-changer” for motoring.

She said: “The Impact of the last six months has been staggering. 

“Changes to Benefit in Kind tax have been a financial game-changer for EV leasing.

“Add this to brilliant electric cars hitting the market and huge savings on running costs versus petrol cars, and EV’s are a total no brainer.

“It’s no wonder then that we are seeing a huge boom, with the number of companies ordering EVs via our salary sacrifice scheme growing five-fold since April.”

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