The company car is becoming more popular again mainly because of electric cars. Once again it is potentially an exciting tax perk and an important part of any remuneration planning. In our updated blog we revisit the tax benefits of an electric car.
Of course, nobody these days questions the environmental benefits of running an ultra-low emission vehicle (ULEV). But alongside the benefits to the planet, it also comes with significant financial benefits for your business. The incentives of buying an electric car have changed recently so let’s bring you up to speed.
Why is an Electric Car more tax beneficial?
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Benefit In Kind (BIK)
In comparison to a petrol or diesel car, the rate of tax for having an electric company car is inexpensive.
In the current tax year (2022/2023) the benefit in kind charge is 2% of list price. This rate is set to stay until 2024/2025. It is then set to increase by 1% per year and so remains very attractive.
The rates are different for hybrid cars which on average is 8% currently. By comparison a petrol car will have an average rate of 31%.
List price basically means the price of the car when new including the price of the battery and of course delivery.
The fuel benefit only applies to petrol or diesel vehicles, because electricity is not included in the definition of fuel. A fuel benefit therefore does not apply to an electric car, so if you have a company car and your employer pays for the electricity there is no benefit in kind for that cost.
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Salary Sacrifice
The rule change in 2017 did not apply to ultra-low emission vehicles. The benefit is based on the benefit in kind rules and as these are quite low it may be worth while looking at Salary Sacrifice for your team members. You may want to consider setting up a salary sacrifice scheme.
Known as the Electric Car Scheme, the monthly cost of the electric car is deducted from the payroll before applying PAYE tax. This way there is tax and national insurance savings.
The car is leased from a third party (a dedicated salary sacrifice company) by your employer which in turn is leased to you as an employee. Normal BIK rules also apply
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Government Grants
There are still some grants available for the Electric Car. There is no application process because the seller should automatically apply the discounts. However, the grants are now only available for a few selected vehicles and full details can be found here.
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Electric charge points
The government has extended the 100% first year allowance for installing the charge points up until 31st March 2023. This means you can offset all costs of fitting these charge points in the year the expenditure is incurred.
There is also the availability of grant funding providing up to 75% towards installing the charge points at domestic properties plus the workplace charging scheme (WCS). You can find out more by visiting .gov pages for the grants.
Where an employer pays for installing a charging point at home when providing an electric company car there in no benefit in kind.
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Capital Allowances
The cost of an Electric Vehicle is eligible for 100% First Year Allowance. Although electric cars are not eligible for the super-deduction allowance (available until March 2023) the allowance is still available for commercial vans.
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Vehicle Excise Duty (VED)
Currently you do not pay VED on a fully electric car.
From April 2025 electric vehicles will be subject to these duties in the same way as petrol and diesel vehicles
From 1st April 2025 a new zero emission car will pay VED of £10 for the first year and then £165 per year from the second year.
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Electric Vans
The taxable benefit for having the private use of an all-electric company van is now nil. There are also grants available for these vehicles plus the VED is zero. An electric van could therefore be an extremely attractive proposition for your business.
Should I buy outright or lease?
For some, it may be more beneficial to lease an electric company car than buy outright.
Buying outright isn’t your only option when it comes to investing in an electric vehicle. Leasing may be a more advantageous option for spreading out the cost of the car.
You might also consider that electric models are developing all the time, and so leasing may give you the flexibility to upgrade later down the line.
There are a few things to consider when deciding whether to lease the car or buy it.
Let us help you figure out the best choice for you
One size may not fit all when going electric. Some may be better off purchasing an electric car outright, some may benefit more from leasing. You’ll feel more confident in your decision when you can assess the tax benefits for your situation and make an informed decision.
Since 2021 you may need to provide additional information on your P11D if you own an electric company car with emissions of 1-50g/km. This includes providing your vehicle’s zero-emission mileage via a new field on the form.
If you want help deciding whether to buy that electric car, please get in touch. Email your normal relationship manager at Myers Clark.
If you are not working with us yet, get the help you need by filling in our form to speak to an expert. We’ll make it as easy as possible to do your part for the environment!