We are often asked if it is beneficial to purchase an electric car through the business. Over the last few years we have seen the evolution of more environmentally friendly cars, particularly electric vehicles (EV), so does this mean that an electric car is more tax efficient?
The most significant financial reason to purchase a vehicle through your company is the reduction in your business tax liability. The costs of operating your vehicle are tax-deductible when it’s used for your business. But only the costs of operating a company vehicle for business trips can be deducted.
If you are selling your current car and use the proceeds of the sale of your existing car to upgrade to an electric vehicle, and you put that equity into the company, that will be treated as a loan from you to the company. When cash becomes free in the future you will be able to take this back out tax-free.
The tax and National Insurance (NI) incurred and tax reliefs of cars is a complex area and we tend to look at individual cases rather than using standardised models. Thresholds and percentages are also regularly changing which does not make it easy. Benefit in Kind (BiK) rates also change depending on the co2 rating and the electric mileage range of the vehicle. These BiK rates also change each year.
Tax for the Employee:
The Benefit in Kind Rates are shown in the following table. These percentages are applied to the full retail value of the vehicle including all extras you may have fitted.
|Vehicle CO2 emissions||BiK rate for cars registered after 6 April 2020|
|1-50 g/km (electric range >130 miles)||n/a||0%||1%||2%|
|1-50 g/km (electric range 70-129 miles)||n/a||3%||4%||5%|
|1-50 g/km (electric range 40-69 miles)||n/a||6%||7%||8%|
|1-50 g/km (electric range 30-39 miles)||n/a||10%||11%||12%|
|1-50 g/km (electric range <30 miles)||n/a||12%||13%||14%|
A fully electric car with zero emissions and a retail price of £30,000 would therefore have BiK £300 for 21/22 and £600 for 22/23. These figures would then be taxed on you at your highest rate of tax. So if you are within the basic rate band your tax payable for 21/22 would be £60 (£300 x 20%). You can see from the above that this BiK rate increases significantly where the electric range is lower for cars producing co2.
Whatever the BiK value is for the employee, there is an Employers NI charge of 13.8% per annum. A BiK of £300 would create Employers NI of £41.40.
Tax Relief for the Employer:
Where the car is bought brand new (strictly first registered owner only) the employer can claim a capital allowance of 100% of the price paid where the car is fully electric or has a CO2 rating of lower than 50g. A £30,000 purchase would reduce your taxable profit by £30,000 and give a corporation tax saving of £5,700 (£30,000 x 19%) in the year of purchase.
You should note though, that when the car is sold, any proceeds would have corporation tax charged at the rate for that year, currently 19%. So if you sold the car for £20,000 after two years, you would have to repay corporation tax of £3,800.
The employer will also be able to get corporation tax relief on the costs of maintaining and insuring the vehicle. If the annual maintenance costs paid by the company were £2,000 there would be a tax saving of £380.
You can see from the above that it is therefore critical to know the following when considering an electric car purchase;
These are significantly more generous rates and allowances than for normal vehicles which are heavily taxed.
You may also be interested in our previous article – Buying an electric car through your company – What you need to know.
If you would like detailed advice please call us on 0203 713 4530 or email firstname.lastname@example.org