What you need to know about electric company cars and tax

The number of electric cars in Britain recently hit the 200,000 milestone, indicating that the UK is finally coming round to the inevitable idea of an emission-free future.

In most businesses, company cars have a significant impact on their expenditure. So how could electric cars contribute to saving your business money?

A company car is always considered a benefit in kind (BiK) if it is given to an employee, which means the correct amount of tax must be paid. The value of the benefit is calculated the same as any other vehicle. However, electric vehicles do benefit slightly as the tax rates are based on the vehicle’s emissions, list price and the income of the employee who primarily uses the car.

Every company car has BiK percentage banding, this can be altered if:

  • It is used part-time
  • The employee pays something towards the cost
  • It has low Co2 emissions.

BiK rates

In 2019, it was stated that there would be no company car tax on electric vehicles. The previously published BiK rates for 2020 to 2021 were discarded, and two new sets of BiK rates for drivers of company cars were created, one for cars registered before 6 April 2020 and one for cars registered from 6 April 2020 onwards.

For cars that were first registered from 6 April 2020, most company car tax rates will be reduced by 2 per cent.

Pure electric (zero tailpipe emissions) company car drivers will be taxed at zero per cent paying no BiK tax at all.

The zero per cent rate applies to;

  • Company cars registered before 6 April 2020, who were looking forward to a reduced rate of 2 per cent for 2020 to 2021 under the previously published BiK rates.
  • Company cars registered from 6 April 2020 with emissions from 1-50g/km and a pure electric mile range of 130 miles or more.

These zero per cent rates are set to increase to 1 per cent in 2021 to 2022 and 2 per cent in 2022 to 2023.

For 2019 to 2020, the rate for zero-emission vehicles is currently 16 per cent. As a new incentive, the government are now dropping the rates to between zero and 14 per cent in 2020 to 2021, depending on the type of electric vehicle.

 

Salary sacrifice

April 2017 saw a tax change in which the employee was required to pay income tax on either the amount of salary sacrificed or the value of the car. Currently, this income tax rule still applies. However, any prior salary sacrifice agreements that precede this tax change will remain exempt from the income tax until 2021.

In the hope to reduce CO2 emissions on UK roads, ultra-Low Emission Vehicles (ULEVs) – cars emitting 75g/km CO2 or less – are eligible to purchase through salary sacrifice and are exempt from the new tax rules.

Benefits for an employer

  • Better vehicle at a lower cost
  • Reduced mileage costs
  • Potentially Reduced National Insurance Contribution
  • No deposit required

Benefits for an employee

  • Drive a new car with improved performance
  • All-inclusive car packages
  • Amount will be deducted before tax and National Insurance Contributions are applied
  • Remaining tax advantages for ULEV’s

P11D value

Also note that the P11D value includes the cost of the battery, regardless of whether the battery is leased or not.

Business mileage

For personal use, the standard rate of mileage allowance is used. For business use only, pure electric cars use a mileage rate of 4p per mile and hybrid cars use a combined mileage rate based on what the hybrid fuel is (petrol or gas).

Capital gains tax

Most electric cars and some hybrid cars benefit from a 100 per cent enhanced capital allowance relief. Please note, this rate only applies where Co2 emissions are 50g/km or less and the car has been purchased new.

 

You can use this handy tool to work out the estimated cost of the vehicle to both the employer and the employee.

 

For help and advice with anything mentioned in this article, contact a member of our expert team today.