I suppose in some ways company and private car tax benefits took a bit of a backstage position for us all in 2020. For most of us there was nowhere to go so the best options for company cars wasn’t exactly right at the top of the agenda. As we come out of lockdown though it’s something that is really worth looking at because transport is likely to become a big factor again this year. From VAT on your repair bills through to paying employee expenses and of course the decision to pay a car allowance or use company vehicles, cars are can be an expensive and troublesome necessity. Petrol and Diesel cars are subject to all kinds of potential pitfalls in relation to running costs and tax. Electric cars on the other hand do come with some real tax benefits that could make them a good choice.
- If your business purchases an electric car outright it will be a capital allowance the same as any other car. However, and this is a very big ‘however’, the capital allowance rate is partially based on the emission rating of the car. Electric vehicles therefore are usually far more viable as a purchase from this perspective.
- Benefit in kind reductions are probably the first thought for electric vehicles in relation to employees. At the moment if you offer employees a company car, they will attract a Benefit In Kind (BIK) hit on their salary. What that means is the employee will be taxed for accepting the company car at a rate based on the emissions for the vehicle. Big score here for electric cars because no fuel means no emissions. At the moment a BIK is 0. This is set to change in the 2021 budget, but the expectation is that it will still be very low at just 1% of the P11 value of the car. The P11 value is the list price including any accessories at the point of purchase. To put that into perspective the BIK on a £40,000 petrol car would probably be thousands a year. On an electric car it would be £0 and next year it would rise to 1% of the sale price. That represents a very large personal tax saving.
- Electric cars do not pay road tax. All pure electric cars are currently exempt from paying road tax. This is a considerable saving compared to the hundreds or pounds that a traditional vehicle could attract.
- Higher tax payers will see substantial returns in the short term. If you fall into the higher income brackets for tax you may find that if the business buys your new electric vehicle your tax benefits are considerable. The saving made here could very well have a real impact on your income.
- Congestion charge is lower if you travel to London. The congestions charge is based on tail pipe emissions and therefore the current charge is the same as your emissions. It is zero. This is set to continue to 2025.
At the end of the day the decision to offer a company vehicle is still quite a complex one and you need to factor in the cost of the car, the VAT (you may not be able to claim this back) the running costs which are often lower for electric but can be considerably higher for maintenance, the tax implications for the business and the employee and several other factors. Our advice is not to jump into the decision because there are several ‘bear traps’ around opting for any company vehicle. In the right circumstances an electric car could make more sense as a potential company vehicle and has several advantages over a more traditional car as a potential purchase. Whatever you decide though the basic question of whether your company car is affordable and a good idea will be decided by your own business circumstances.
Call us to talk through your options.