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Electric car tax benefits: Do they match up to their energy efficiency?

During 2019, the Government revealed a whole host of electric car tax benefits. For one, they told us electric vehicles would be exempt from company car tax in the 2020/21 tax year. This was a milestone decision as it was the first opportunity for company cars to be taxed at 0% as a benefit in kind (BIK), and a massive incentive for you as a business owner to embrace the green economy. 

Then in 2020, Chancellor of the Exchequer Rishi Sunak continued to support the green agenda of companies. He confirmed that the Plug-In Car Grant would continue to 2022-2023, although at a slightly reduced rate from £3,500 to £3,000, and with the exclusion of cars costing £50,000 or more.

So, does it pay for you to go electric, buy a Tesla, and dump your gas-guzzling planet polluting company car forever? Let’s talk through some of the electric car tax benefits that prove it certainly does.

If you would like to find out more, chat to a Blu Sky client relationship director.

BIK tax benefits for electric cars

BIK are extra benefits given to you and your employees as benefits packages that are not included in salaries or wages, like an electric car and its insurance, maintenance, and servicing.

With company car tax advantages gradually eroding during the last decade I suspect most of your employees and you as company director have explored other more affordable and flexible remuneration options,. Things such as car allowances rather than purchasing and providing actual company cars.

That was largely the best and only option for you, until now!

The start of the 2020/21 tax year has seen electric cars become exempt from BIK tax. This makes having an electric company car a much more tax-efficient choice than it has been in recent times.

So today, no matter when the registration date was, pure electric cars with zero tailpipe emissions (and certain plug-in hybrid cars) will be taxed by the following BIK percentages (company car tax rates) for the next three tax years

  • 0% during 2020/21
  • 1% during 2021/22
  • 2% during 2022/23

So straight out the pits, the 2020/21 tax year must be the perfect time for you to go register an electric company car. And there is more….

Electric cars are exempt from road tax

Simply put an electric car is exempt from road tax. The Government has also stated that, until March 31 2025, all zero-emission vehicles will be exempt from the ‘expensive car supplement’ too.

Capital allowances

Another no brainer. To support you opting to take on a zero-emission vehicle from April 2021, the Government will extend the 100% first-year allowances to four years when you purchase an electric car.

That means when you purchase the electric car for cash or via a hire purchase agreement, the full cost of the vehicle (gross of VAT) will be deductible for corporation tax in the year of purchase.   

The plug-in car and van grant

More good news (well mostly). The Plug-In Car and Van Grants provide up to a maximum of £3,000 (previously £3,500) off the price of your zero-emission car purchase and £8,000 off the price of a plug-in van.

This does have a cap that excludes models with a list price of £50,000 or more. So not your top-spec Tesla, but a fair number of other attractive electric vehicles!

Car fuel benefit charge and fuel rates

As electricity is not classed as road fuel (yet), your electric car will not attract any fuel benefit charge. That means you and your employees are exempt from paying BIK on electricity provided by the company to charge electric company cars.

The advisory fuel rate for fully electric vehicles has also been confirmed by HMRC as a modest 4 pence per mile.

What about your employees and salary sacrifice?

Good news for the electric car tax benefits for your employees enjoy too… Salary Sacrifice enables employees to sacrifice some of their gross salary to receive the benefit of driving a fully electric company car.

As the sacrifice is before tax and National Insurance contributions are applied, employees save on the purchase of their new car in a similar way that other savings such as childcare, gym membership or cycle-to-work schemes operate.

From your company’s perspective, this scheme provides an opportunity for you to offer your employees a new car at a lower cost than they could achieve in the retail market in a tax efficient way. The company may also benefit from reduced National Insurance contribution payments from the scheme. 

What an amazing benefit to help with staff engagement.

Lower your company’s carbon footprint

This one you can’t really put £££££s next to, it is all about that feel good factor of knowing that you, your company and your employee’s are doing your bit to reduce your carbon footprint and help the fight against climate change.

For many employees, working for a company that is positively embracing the green agenda is more important to their engagement than pound notes.

It is not all about tax you know.

Looking for tax advice?

Get in touch with our team and let’s talk about how we can support you.

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