We all know that electric cars are better for the planet. But, if you drive a company car, will the switch to electric be better for the pocket too? We look at the tax benefits of zero-emission electric company cars.
Rising company car costs
The takeup of electric cars has increased significantly in recent years. This has been driven by three key factors:
- the green credentials of electric vehicles (EVs)
- rising fuel prices
- the continual increase of the ‘benefit in kind’ percentages for petrol and diesel cars.
These fuel and tax increases mean the company car has become a much more expensive ‘perk’ for both the employee and the company.
Tax benefits of electric company cars
Electric cars can be an attractive option for company owners due to the potential tax and National Insurance Contributions savings.
If a company purchases a zero-emissions car, the full cost can be deducted from the company’s taxable profit in the year of purchase. This will lead to a Corporation Tax saving. To qualify for the 100% deduction, the car needs to be ‘unused’ (i.e. not second hand). Extra care should be taken if buying an ex-demonstration car.
Where the company leases a zero-emissions car, the lease cost is an allowable expense for the company.
From 6 April 2022, the benefit in kind percentage on zero-emission cars is 2%. This rate is not expected to rise before 6 April 2025 at the earliest and is markedly lower than the rate for petrol or diesel cars – meaning less tax for the employee, and lower Class 1A National Insurance Contributions for the company.
Charging and mileage
If an electric vehicle has been made available to the employee, the company can install a charging point at the employee’s home with no benefit in kind issues. To avoid any tax issues around the cost of charging at home, the employee should pay for all the electricity used. The employee can claim expenses from the company for business mileage at a rate of 5p per mile (previously 4p). Alternatively, the company can install a charging point at the office and pay for the car to be charged with no benefit in kind issues.
Purchasing hybrid cars
The benefit in kind for hybrid cars is often higher than expected, with the figure being dependent on the electric range of the car. Note that the full purchase cost cannot be offset against company profit in the year of purchase. Instead, the cost would be written down and the tax benefit claimed over a number of years. Your RfM advisor will be happy to guide you in this area.
The provision of a company car to an employee must also be reported on form P11D after the end of the tax year.
Finally, don’t forget that the VAT aspects of purchasing a new vehicle also need to be taken into account.
How we can help
If you are a business owner considering making the switch to an electric or hybrid vehicle, please get in touch for advice on doing things in the most tax-efficient way. Enquire online or contact one of our offices.