Electric Car Tax Breaks
With the price of fuel flying through the roof and the government’s approach to levying extremely high levels of tax on company cars provided as a benefit in kind, many business owners are looking at electric vehicles as a strong alternative to traditional cars or pickups.
The tax benefits are strong and given the wind of political pressure on the green economy it seems unlikely to change any time in the near future.
So, why should you consider an electric vehicle?
Benefit in Kind for a petrol vehicle
When a company provides a company car to a director or employee, this is treated as a taxable part of the employee’s salary. HMRC will take the list price of a car and apply a percentage based on the car’s CO2 emissions. They will then take the result and treat it as a cash equivalent. For example:
We purchase a car worth £30,000 which has a CO2 rating of 130g/km
List Price: £30,000
% CO2 charge 31%
Cash Equivalent £9,300
This means that every tax year we will pay tax as if we had been given a salary £9,300 higher than our current salary.
When a company buys a car, we can also make a Capital Allowance claim in the company to save Corporation Tax – £5,400/ year for the next 5 years with a final balancing claim in year 5.
It also means it takes 5 years for our company to get the full credit for their capital purchase. We will eventually receive corporation tax savings at 19% of the purchase price, i.e. £5,700 over five years.
Naturally, this is no small sum and makes a company car an unattractive proposition for any director who controls their own company.
Benefit in Kind for an electric car
What if we were to purchase an electric car at the same price point via our company?
List Price: £30,000
% CO2 charge 2%
Cash Equivalent £600
A massive improvement over the petrol vehicle.
We can also make a claim immediately for 100% capital allowances, saving us £5,700 in the year we buy the car, rather than delayed over 5 years.
Be aware that the CO2 rules on what constitutes the preferential treatment for electric cars are extremely strict. In order to get the best treatment cars must produce less than 50g/km of CO2.
Many cars advertised as hybrid do not meet this condition, however you must do the calculation separately for each car.
Until at least the end of 2023, the government has in place a £1,500 subsidy for new electric cars less than £32,000 in value and £2,500-£5,000 for electric vans. This subsidy is applied at the dealer’s end and will be baked into the purchase price of any electric vehicles
Businesses can claim full allowances for electric vehicle charging points which they install on their premises as long as these charging points are available to all members of staff.
In addition, any electricity used by directors or employees to recharge their vehicle is treated as a company expense and incurs no tax liability for the individual.