Tax savings on electric cars make good sense (for now)
Having a new company car may sound like an attractive perk to your job, but there are tax implications to consider. Here are some of the incentives and tax savings available.
Government plug-in grant for electric vehicles
You can get a discount on the price of brand new low-emission vehicles through a £1,500 grant the government gives to vehicle dealerships and manufacturers.
You do not need to do anything if you want to buy the vehicle – the dealer will include the value of the grant in the vehicle’s price. The grant will pay for 35% of the purchase price for the vehicle, up to a maximum of £1,500.
This grant has been reduced over the years so may not last much longer, and conditions are attached. For instance, the car must be brand new and cost less than £32,000 (including VAT and delivery).
For electric vans the grant is capped at 20% of the purchase price, up to a maximum of £5,000 (or £2,500 for a small van). For Motorcycles the grant will pay for 35% of the purchase price, up to a maximum of £500.
For more information about all vehicles types included in this scheme visit: https://www.gov.uk/plug-in-car-van-grants
Benefits-in-Kind (BIK)
HMRC considers private use of a company car (including commuting), as a perk, and is classed as a benefit-in-kind (a financial benefit that isn’t part of your salary).
Company car benefits-in-kind rates are calculated on the cost of the vehicle, the amount of CO2 emissions and how much you earn.
In 2022/23 and 2023/24 the benefit-in-kind rate for fully electric cars continues to be only 2%, which is much lower than most diesel- or petrol-powered vehicles.
The amount of tax you pay on an electric company car also depends on your income-tax band. Whether you are a 20%, 40% or 45% income taxpayer, you will pay a percentage based on the calculation below.
P11D value(£s) x BIK rate (i.e. 2 %) x Income Tax Band (%) = Annual tax payable
Salary Sacrifice
If an employee has a company car provided by their employer under a salary sacrifice arrangement, the usual taxable benefit is the higher of the salary given up or the taxable car benefit. For fully-electric cars under a salary sacrifice arrangement, the provision allows for the employee to retain the lower BIK tax charge.
Capital Allowances
Electric charging points: Capital allowances of 100% in the first year of expenditure are available for installation of electric charging point equipment. The expenditure must be incurred before 1 April 23 for corporation tax purposes and before 6 April 23 for income tax.
Electric cars: also qualify for a 100% first year allowance, provided the car is brand new when purchased.
Excise Duty
On top of the benefit-in-kind savings made by opting for a fully-electric vehicle you will also benefit from lower vehicle duty, which for zero-emission vehicles registered on or after 1 April 2017 currently stands at £nil until at least 2025. For a full list of vehicle tax rates visit https://www.gov.uk/vehicle-tax-rate-tables.
Electric vs petrol
Electric cars’ cost per mile are significantly lower than for conventional cars. According to some sources fuel costs can be reduced by up to 80 per cent.
Exemptions for EV charging
Employers could be exempt from being taxed as a benefit-in-kind when providing electric car charging points. These conditions need to be met:
- Electricity must be provided via a dedicated charge point
- The charging facilities must be provided at or near the workplace
- Charging must be available to either all employees or all the employer’s employees at a particular location.
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