Tax Benefits Of An Electric Car In Your Company

Tesla - Downtown Electrical

Company cars are often seen as a big expense, with endless running costs to consider.

Switching your fleet to electric cars offers a range of savings compared to petrol and diesel costs. 

With the government planning to ban the sale of new petrol or diesel cars by 2030, they’re adding more and more financial incentives for people and businesses to switch to electric cars.

That includes thousands of pounds a year in tax savings for employees and businesses.

Here’s a handy guide to the electric company car tax benefits you could be taking advantage of in 2021.

Electric car road tax

An immediately attractive benefit of fully electric cars is that they’re exempt from road tax (or Vehicle Excise Duty to get technical about it).

All cars registered between 1st March, 2001 and 31st March, 2017 with CO2 emissions below 100g/km are completely exempt.

For low emission cars registered from 1st April 2017 onwards, the 0% rate applies to cars with emissions of 50g/km and under.

However, for hybrid cars with emissions above this amount, first-year tax payments are still drastically reduced compared to petrol and diesel cars.

Zero-emissions vehicles are also exempt from additional annual charges regardless of their cost, while other vehicles are taxed an extra £325 a year if they’re valued above £40,000.

Electric car benefit in kind tax

Even if your electric company car is exempt from road tax, there’s still company car tax to consider when the vehicle is a ‘benefit in kind’.

This tax applies when employees use company cars privately as well as for work, which includes commuting.

That said, the benefit in kind rates for electric cars are extremely low.

As an incentive for businesses to go electric, the government dropped the tax for vehicles with emissions below 50g/km from 16% in 2019 to 0% in 2020.

This will increase to 1% in the tax year from April 2021 to April 2022, and to 2% the following year, but then it’ll freeze at this rate until at least 2025.

Due to recent changes in CO2 emissions testing, electric car BIK rates are slightly different for cars registered before April 2020 and cars registered afterwards, making them even lower for hybrids with emissions between 1-50g/km.

By comparison, petrol and diesel cars with higher emissions will generate a benefit in kind rate between 16-37%.

Here are the benefit in kind rates for cars registered after April 2020:

 

CO2 emissions Electric range 2019-2020 BIK rate 2020-2021 BIK rate 2021-2022 BIK rate 2022-2023 BIK rate
0 g/km n/a 16% 0% 1% 2%
1-50 g/km >130 miles 16% 0% 1% 2%
1-50 g/km 70-129 miles 16% 3% 4% 5%
1-50 g/km 40-69 miles 16% 6% 7% 8%
1-50 g/km 30-39 miles 16% 10% 11% 12%
1-50 g/km <30 miles 16% 12% 13% 14%
51-54 g/km 19% 13% 14% 15%
55-59 g/km 19% 14% 15% 16%
60-64 g/km 19% 16% 17% 18%
65-69 g/km 19% 16% 17% 18%
70-74 g/km 19% 17% 18% 19%
75-79 g/km 22% 18% 19% 20%
80-84 g/km 22% 20% 21% 22%
85-89 g/km 22% 20% 21% 22%
90-94 g/km 22% 21% 22% 23%
95-99 g/km 23% 22% 23% 24%
100-104 g/km 24% 23% 24% 25%
105-109 g/km 25% 24% 25% 26%
110-114 g/km 26% 25% 26% 27%
115-119 g/km 27% 26% 27% 28%
120-124 g/km 28% 27% 28% 29%
125-129 g/km 29% 28% 29% 30%
130-134 g/km 30% 29% 30% 31%
135-139 g/km 31% 30% 31% 32%
140-144 g/km 32% 31% 32% 33%
145-149 g/km 33% 32% 33% 34%
150-154 g/km 34% 34% 35% 35%
155-159 g/km 35% 34% 35% 36%
160-164 g/km 36% 35% 36% 37%
165-169 g/km 37% 37% 37% 37%
>170 g/km 37% 37% 37% 37%

 

Electric car capital allowance

When you buy a new zero-emissions electric car, it’s eligible for an Enhanced Capital Allowance.

This First Year Allowance means 100% of the car’s cost is tax deductible in the first year of ownership.

You can deduct the amount from your pre-tax profits on your tax return for that year, reducing the amount of Corporation Tax your business has to pay.

For example, buying a £30,000 fully electric car would reduce the year’s taxable profit by that amount and save you £5,700 in Corporation Tax at the 19% rate.

You’ll also be able to claim this tax relief allowance for any maintenance costs for the vehicle during the first year.

Meanwhile, cars that emit 1-50g/km of CO2 get an 18% allowance from April 2021, while cars with emissions above this range will be eligible for 6%.

The First Year Allowance also applies when you install new electric car charging points at your business, so you can save even more while investing in infrastructure to power your new electric fleet.

Electric car VAT claims

Unfortunately, there are currently no special tax breaks for low-emission vehicles when it comes to reclaiming VAT.

The same rules apply as for non-electric cars, meaning it’s only possible to claim VAT for a company car if it’s for completely private use.

This can be difficult to prove, as you’d need to show contracts specifying that company cars are solely for business use and not for driving to and from work.

However, if the company car is only for business purposes, you can claim up to 100% of the VAT costs, including business-related maintenance and running expenses.

The RAC and the AA are both pressuring government ministers to reduce or abolish VAT for electric cars, finding that more than half of drivers they surveyed support the idea.

With the UK government introducing more tax incentives for electric cars every year, this might become a tax benefit for electric company cars very soon.

Electric car fuel tax

The fact that electricity is cheaper than petrol and diesel is one of the biggest benefits for electric cars.

The cost of electricity includes 20% VAT, the same as the cost of petrol or diesel from the pump, but there is no additional Fuel Duty for electricity like there is for petrol or diesel.

The Fuel Duty tax adds about 58p per litre to the cost of traditional fuel, contributing to the growing gap between running costs for electric cars and traditional cars.

As an example, EDF Energy found that on average an electric car would cost 3.9p per mile to run compared to 9.2p per mile for a non-electric car.

When it comes to providing fuel for company cars as a benefit in kind or reimbursing employees for the cost of fuel, electricity isn’t actually recognised as a fuel for tax purposes.

This means that if employees charge their company cars at work, this fuel isn’t a taxable benefit and can also be deducted from pre-tax profits – another incentive to install electric vehicle charging stations at work.

If you want to save even more money switching to electric company cars, contact us to discuss installing discounted EV chargers at your business with the Workplace Charging Scheme grant.

Click to Call Us