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Is the Electric Car the future of company cars?

5th November 2019

Car, electric car, benefit in kind, tax, grant-jones

There is no doubt that Electric cars are growing in popularity.

The appeal of zero emissions, zero road tax and a quieter driving experience are all encouraging drivers to switch. Technology and facilities are also improving. The availability of charge points, the driving range between charges, the number of vehicles on the market and the battery recharge speeds have all been on the rise.

All of these factors put together have made zero and low emission (i.e. Below 50g/km CO2) cars - be they pure electric or one of the hybrid models - a viable option as a company car. Add in the fact that the government is offering a ‘plug in car grant’ of up to £3500 against the on-the-road price of pure electric cars and they look even more attractive.

For a smaller business, being able to offer a company car as a benefit can be a real bonus when it comes to recruiting talent. It puts them on a more equal footing with the 'big boys' of the corporate world who can offer such benefits as part of their standard package. And electric vehicles come with a number of tax advantages which means they deserve a closer look.

Lower rates of 'benefit in kind' tax

electric car, tax, company car, taxAny company car (bought and maintained by the employer but used by the employee for both personal and work use) is considered a benefit in kind and the employee is taxed on the value of the package (usually in line with their highest band of income tax). For a low-emission vehicle the employee pays less tax (the taxable value of the car is reduced).

Added to this, electricity is not seen as a fuel so, while receiving petrol or diesel for personal travel from your employer is a taxable benefit in kind, charging an electric car at the office is not. Similarly, if an employer installs an electric charge point in the home of an employee, there is no tax on this benefit in kind on this either.

For the employer, if they can offer their people the chance to buy an electric car using salary sacrifice (i.e. the money is taken from their monthly pay), they get NI and income tax benefits (unlike many other salary sacrifice arrangements where the employers tax and NI liabilities remain the same).

Note: It was announced in 2017 that from April 2020 the car benefit system is being overhauled in favour of electric cars. This is not yet confirmed but if the changes go through they could make electric company cars even more tax efficient.

Capital Allowances for business owners

The UK Government is keen to reduce carbon emissions so they are offering a further incentive to businesses who purchase low emission vehicles.A brand new low emission car (or van) can claim 100% Capital Allowances on the purchase price. Thus, in the year it is purchased, the entire cost of the vehicle can set against taxable profile, therefore reducing the amount of corporation tax paid. For a smaller business that can be quite a significant saving. 

So is an electric car the best company car?

It would be lovely to be able to just answer 'yes' or 'no' to that but the answer isn't simple - because tax isn't simple and everyone's tax situation is different. There are lots of different factors in play - from the emission levels, the exact type of vehicle, the way the vehicle is used and the levels of income tax being paid by the individual. But, let me give you a worked example to show you how it might work for a typical situation.

Sam is a business owner and is considering a pure electric car as her next company car. She is considering the Vauxhall Corsa-e SE which has a list price of £30,640. The taxable benefit in kind to Sam will be £4,902 for 2019/20 and she is a basic rate tax so that means £980 tax on the car on this year’s tax return and she pays no fuel benefit charge as electricity does not count as fuel.  If the planned changes happen for car benefits she’ll pay substantially less tax in 2020/21.

By having a company car rather than buying it personally, Sam’s business pays for servicing, insurance and depreciation – and the business gets tax relief on the list price and the running costs of the car.  

The cost of Sam owning the vehicle personally is estimated to be £7,452 per annum (which includes depreciation and running costs). As a company car it costs Sam £980 in tax and her company £2,087 in the first year so, since it is her own business, she is saving around £4000.

Does this look attractive? Do you think it is worth exploring further?

If so, we are offering a FREE Company car comparison for the first five people who mention this blog when they phone to book. We can look at your situation, compare the models you are considering and help you see if this is for you.

 

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