There are millions of petrol and diesel vehicles on our roads every day but, with climate change deemed to be an emergency of colossal proportions, people are being encouraged to change their behaviours and adopt greener alternatives wherever possible.
The Government expect to have banned sales of new petrol and diesel vehicles by 2030 and, as many business owners become more aware of their ‘green credentials’, we find ourselves discussing electric company cars with an increasing number of our clients.
Bringing electric vehicles (EVs) into your business
Benefit-in-Kind (BiK) tax rates
Employers often choose to offer EVs to their workforce via a salary sacrifice arrangement.
Provided in this way, EVs are considered a Benefit-in-Kind (BiK) but do attract a preferential rate of tax, both for employer and employee. Unsurprisingly, lower CO2 emissions result in larger tax savings.
The P11D value of the vehicle, its CO2 emissions, and the rate at which an employee pays income tax (National Insurance, where employers are concerned) will determine the tax bill they are left with.
The tax charge for solely electric cars is currently 2% for the 2022/23 tax year, compared to the tax charge of 14% that applies to vehicles emitting 1-50 CO2 (g/km), with an electric mileage range of <30.
For many business owners, this is a win-win; a lower-cost incentive (when compared with petrol/diesel equivalents) that shows a commitment to curtailing environmental impact.
Employee: List price of vehicle x tax rate (based on emissions) = BiK value x income tax rate (i.e., 20%, 40% or 45%) = Tax due on BiK
Company: List price of vehicle x tax rate (based on emissions) = BiK value x National Insurance rate (13.8%) = Tax due on BiK
The difference in the tax bill between a fully electric vehicle and petrol vehicle is potentially thousands of pounds.
Purchasing versus leasing EVs for your business
One of the first questions you might ask yourself, is whether to purchase a vehicle or to enter into a lease contract.
Increasing residual values in respect of EVs are making lease arrangements a competitive option, as well as the fact that 100% of your lease (on qualifying vehicles) can be offset against taxable profits.
This will ultimately reduce your profits subject to Corporation Tax, which is worth bearing in mind given that the rate of Corporation Tax will increase from 19% to 25% in 2023.
VAT liabilities should also be considered, when deciding whether to purchase or lease.
You cannot claim VAT back on vehicles purchased by your company, unless 100% business usage can be proven. However, 50% of the VAT on leasing payments can be claimed back, even in cases where the vehicle is not used solely for business purposes.
Capital Allowances and EVs
From April 2021, the Government went one step further in respect of incentivising people to ‘go green’, by allowing pure zero-emission cars and vans, which are new and unused, to qualify for 100% first year allowance (FYA), with no upper limit on value.
If you choose to claim the FYA, it is worth bearing in mind that a balancing charge and a Corporation Tax charge may be created when you come to sell the vehicle on and, should you opt to buy the car from your company at any point, clawback of capital allowances claimed is likely.
Paying tax back on the sale price of the car, when you come to sell, means that whilst there may be an upfront saving, this is not always observed long-term.
Additionally, the super-deduction announced at Spring Budget 2021 affords for a 130% FYA on qualifying electric charging points, that are used within the business, for EVs, until March 2023.
A sole trader can claim 100% first year allowances (FYA), restricted to the business element of the cost, whilst fuel, servicing, insurance, and repairs can be claimed as tax-deductible expenses.
- If you allow employees to charge their EVs via points at or near the workplace, at no cost, the electricity provided is not considered to be a taxable benefit.
- From April 2021, there are no tax implications for using a company owned electric van for personal use.
- Employees utilising private EVs for business journeys can claim an annual tax-free mileage allowance of 45p per mile for the first 10,000 miles and 25p per mile for any business miles thereafter.
- Be aware that the Government has now closed the Plug-in Car Grant scheme which, as of December 2021, amounted to a contribution of £1,500 towards pure EVs priced under £32,000. The scheme was supposed to run until 2023.
What are the drawbacks of EVs as company cars?
Obviously, all of the tax advantages do not take account of the fact that it is an electric vehicle and may have some limitations; for example, the vehicles range, time taken to charge, and the availability and installation of charging points are all important considerations. Availability and cost of the vehicles themselves is also an unassailable barrier to investment for some.
Talk to us… about company car tax & EVs
We understand that to replace your existing company vehicle/s with EVs, if you have not already, is a big decision and amounts to a significant investment.
In light of dwindling Government incentives and taking into account some of the practical limitations of EVs, it is really a question of whether the tax and environmental advantages are sufficient to make the switch worthwhile for your business.
We can help you to dissect the implications of purchasing EVs, whether for yourself as a director or for your wider workforce, and of operating salary sacrifice schemes in relation to cars or other benefits.
To talk to us about company car tax or bringing EVs into your business, contact us today.