A decision many people postponed during the pandemic was buying a new car. Registrations for new cars fell to their lowest in almost 30 years in 2020. For others, however, it was the year many decided to go electric with over 108,000* electric vehicles sold in the UK – accounting for approximately one in 20 of all sales.
We take a look at what the tax benefits are for electric vehicles and what to be aware of when considering a zero emission car.
Company cars are taxed as a benefit in kind and income tax is payable by the employee on the benefit. This is calculated by multiplying the list price of the vehicle by the appropriate benefit in kind rate.
The benefit in kind rate is given as a percentage and is determined by the CO2 emissions and fuel type of the vehicle. The employee is then taxed on this calculated amount at their own marginal rate of income tax (i.e. 20%, 40% or 45%).
From April 2020, significant reductions in the benefit in kind rate were made for electric-only cars. The percentage for electric-only cars fell to 0% in 2020-21, with an expected incremental increase to 1% 2021-22 and 2% in 2022-23.
Since 18 March 2021, the government has provided a grant of up to £2,500 on the purchase of a new electricl car (the grant was previously £3,000). To be eligible, the car must cost less than £35,000.
However, not all cars qualify for the grant and referring to the government’s approved list in the first instance is advised.
There is also a grant of £350 available for installing a charging point at home.
Capital allowances for a company
For pure zero emission cars, first year capital allowances are available to the company. The effect of this is that the total cost of the car is written off in full in the year of acquisition against the taxable profits of the company. To comply, the car must be purchased outright or under a hire-purchase agreement.
Capital allowances for the self-employed
First year capital allowances are also available to self-employed individuals if the car has zero emissions. However, the deductible cost is restricted by private usage of the car.
If charging facilities are installed at the workplace, employees can charge their electric cars with no taxable benefit arising (the facility must be available to all employees generally).
Alternatively, the company can reimburse the cost of charging the vehicle with no fuel benefit arising (as electricity is not classified as fuel). The amount recharged is either the actual cost from a roadside station or set at 4p per mile where the employee uses their domestic supply at home. The reimbursement only applies to qualifying business mileage.
Other tax benefits:
The Government has also provided some further reaching tax benefits for electric vehicles, including:
As electric cars become more accessible and with Government tax regimes designed to encourage the use of low emission vehicles, their popularity is likely to grow. For an initial discussion regarding the above rules and how they might affect your business, please get in touch.