While tax incentives have always been on offer for companies to purchase electric, hybrid and low emission cars, recent changes announced by the Treasury have meant that there are now significant savings on offer for such purchases. We have put together the below guide on how to make the most of the tax advantages available relating to investing in an electric car.
Company cars – how much tax do I have to pay?
Where cars are provided by the company to its employees, company car tax is payable by the employee based on the vehicles value multiplied by the appropriate benefit in kind rate. This rate is determined by the car’s CO2 emissions and fuel type. The employee is then taxed on this calculated amount at their own marginal rate of income tax (i.e. 20%, 40% or 45%).
Save on tax with Electric cars and low emission vehicles
The Treasury have recently announced significant reductions in the benefit in kind rate for electric and very low emission vehicles. These reductions will come in to force with effect from 6 April 2020.
Electric cars will benefit most significantly from the changes. The benefit in kind rate for electric cars will decrease from 16% in 2019-20 to 0% in 2020-21, 1% in 2021-22 and 2% going forward from 2022-23.
In addition to this, the rates will also decrease for cars with C02 emissions below 70g/km, however, the amount will depend on the exact level of emissions, whether the car was registered pre or post April 2020 and the electric range of the car in the case of hybrid vehicles.
In summary, the tax savings on offer will largely be aimed at electric vehicles and hybrid vehicles with longer ranges. For example, it will be possible to provide an employee with an electric car and there will be no income tax due for one year and only a very relatively small tax charge going forward.
Other tax savings and incentives
Capital allowances
For cars with C02 emissions of 50 g/km or less (or electric cars), first year capital allowances are available to the company. The effect of this is that the total cost of the car is written off in full in the year of acquisition against the taxable profits of the company. The government may give the company a discount of up to £3,500 for purchasing a brand-new electric car.
Individuals
Any UK based company is able to deduct the cost of the car against its taxable profits in the year of acquisition if the car is brand new. The tax relief means that the company would receive an 18% discount on the amount paid.
Charging facilities
If charging facilities are installed at the workplace, employees can charge their electric cars with no taxable benefit applied (the facility must be available to all employees generally).
Alternatively, the company can reimburse the cost of charging the vehicle with no fuel benefit applied (as electricity is not classified as fuel). The amount recharged is either the actual cost from a roadside station or set at 4p per mile where the employee uses their domestic supply at home.
Other tax benefits:
The Government has also provided some further reaching tax benefits for electric vehicles, including:
Tax savings can be significant
The ongoing focus of the Government to encourage the switch to electric cars means that the overall tax saving for the company and its employees can be large. This is particularly the case for companies with larger fleets.
As we move into 2020, the team at HW Fisher are reviewing the ways we can help clients be more sustainable, for an initial discussion regarding the above rules and how these could affect your business going forward, please get in touch.
Russell Nathan
T: +44(0)20 7380 4971
E: rnathan@hwfisher.co.uk
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