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Time to go Electric? The EV Company Car Tax guide

Electric Company Car Tax Guide

You might be thinking, is it time I switched to an Electric Car? Battery Electric Vehicles (BEVs), are becoming much more popular, with more and more car manufacturers jumping on the Tesla bandwagon. This Electric Company Car Tax Guide lists all the tax savings, reliefs and incentives currently being offered. If you are considering buying an electric car for yourself as a company director or for your employees, now is the ideal time. One of the reasons to switch is they currently attract zero benefit-in-kind rates for the 2020/21 tax year, and can be a really cost-effective option when selecting and then running a new company car. Electricity as a fuel is around 80% cheaper than petrol or diesel. Not to mention zero road tax and lower maintenance costs. As a bonus, you get to write off the cost of your new fully electric car as a tax deduction in your first year – a 100% tax relief known as the First Year Allowance!

The government is clearly trying to push drivers and businesses towards investing in the best low emissions company cars through the use of tax incentives. Electric car benefit-in-kind (BIK) tax treatment is significantly more beneficial than that for conventional engine cars, especially diesels. If you are looking to save on your tax, and you were going to get a company car anyway, it is definitely worth taking advantage of this benefit.

If you are thinking of choosing an electric car, or are doing your research to determine if one could work for you, this Electric Company Car Tax Guide is a comprehensive guide to how the tax is calculated for electric cars. Read on to understand the benefit-in-kind tax regime, so that you know how much you’ll pay, and can decide if an electric vehicle (BEV) would suit.

You’re kidding, the tax relief is 100% on a Tesla Model X?

I kid you not. Yes, even the Tesla Model X Performance with a list price of £98,000. And does 0 to 60mph in 2.6 seconds!

Amazingly the tax man continues to allow companies to claim 100% allowances in the first year if they buy these vehicles. The First Year Allowance applies to new and unused cars with CO2 emissions that are 50g/km or less (or car is electric). From April 2021, only new and used cars with CO2 emissions of 0g/km will be eligible for the 100% first-year allowance, while those business cars with CO2 emissions not exceeding 50g/km will be eligible for writing down allowances at the main rate of 18%, and other cars with CO2 emissions exceeding 50g/km will be eligible for WDAs at the rate of 6% (previously 8%).

So a company buying a £98,000 Tesla will have its profit reduced by £98,000 saving £18,620 in tax! Beware, though of the balancing charge. When you sell the car, the proceeds will result in the whole of the sale price being added to your profit and taxed at 19% for corporates – a good excuse to then go and buy another tax efficient car!

There’s many makes and models of cars which qualify for 100% tax relief; with some amazing performance vehicles included on the list:

The Porsche Taycan 4S, Tesla Models S, X and Model 3 Performance, Polestar 2, Jaguar i-Pace, Mercedes EQC, Audi e-Tron, VW ID.3, MG ZS EV, Kia e-Niro, Hyundai Kona, Renault Zoe, Nissan Leaf, Mini Electric & many more. The price of these cars varies from £25,495 for the MG ZS EV right up to over £100,000 for a Tesla Model X Performance with self driving capability.

If you can’t bring yourself to go fully electric, the 100% allowance is also eligible on a host of plug-in Hybrid vehicles such as the BMW i-8, BMW 530e iPerformance, and the Volvo V90 T8, but only until April 2021 when it reverts to 18% p.a.

In the March 20 Budget, the Chancellor also announced the exemption of zero emission cars from the Vehicle Excise Duty (VED) ‘expensive car supplement’. Prior to the Budget, electric vehicles, such as a Tesla Model X costing over £40,000 would be subject to a £320 VED supplement. It means that all fully electric cars are exempt from VED. 

Top Tip:

It is not necessary to claim the 100% first-year allowance where the expenditure qualifies for it – a writing down allowance may be claimed instead if this is beneficial, for example, if claiming the first-year allowance would result in a loss. It is also possible to claim less than the full 100%, thereby tailoring the claim to achieve the best result. 

Tax Trap:

First-year allowances are only available for expenditure on new and unused cars – expenditure on second hand cars does not qualify for the first-year allowance, even if the emissions criteria are met, although writing down allowances are available.

Benefit-in-Kind (BiK) tax is zero % on electric cars?

In 2019, the Government announced that company cars producing no CO2 emissions would attract a zero percent Benefit-in-Kind tax rate from April 2020, meaning you as Company director or your employees would pay no additional tax on their PIID for a 100% electric car for that tax year.

These rates would then increase to 1% for 2021/22 and 2% for 2022/23 for vehicles registered after 6th April 2020.

In the March 2020 Budget, the chancellor announced that the BiK rates for all company cars for the tax years 2023/2024 and 2024/25 tax year would remain at the 2022/23 levels.

How does this compare to other cars?

Up until the 2024/25 tax year, two tables of benefit in kind rates will be in operation; one for vehicles registered before 6th April 2020 and one for vehicles registered after that date. The full benefit in kind tables can be found below:

Cars First Registered before 6th April 2020

Cars First Registered from 6th April 2020

Diesel cars will continue to be subject to the 4% premium on the above rates, but those meeting the latest RDE2 rules on nitrogen oxide emissions will be exempt from this.

From an individual taxation liability perspective, someone that choices an electric vehicle over a combustion-engine equivalent will be subject to much less tax than they would otherwise. If an electric vehicle would suit an individual, and they could be selected from a company car choice list, then it makes the most financial sense to choose one.

Here is an example to compare the electric car benefit in kind to a similar diesel equivalent.

Tesla Model 3 Long Range

  • P11D Value – £49,990
  • List Price after Government Grant – £46,990
  • CO2 Emissions – 0 g/km – 0% of P11D value is taxed in 2020/21
  • Employee’s income tax rate – Higher 40%

To calculate the company car tax we use the following formulae:

P11D Value x Benefit in Kind (BiK) CO2 Rate = BiK Value

And then: BiK Value x Tax Rate = Annual Company Car / BIK Tax

2020/21 Tax year £49,990 x 0% = 0

£0 x 40% = £0 annual tax payable 2020/21

2021/22 Tax year £49,990 x 1% = £499.90

£499.90 x 40% = £199.96 annual tax payable or £16.67 per month

2022/23 Tax year £49,990 x 2% = £999.80

£999.80 x 40% = £399.92 or £33.33 per month

BMW 320i M Sport Saloon

  • P11D Value – £35,465 (no Government Grant)
  • COEmissions – 149 g/km – 32% of P11D value is taxed in 2020/21 (includes diesel supplement)
  • Employee’s income tax rate – Higher 40%

To calculate the company car tax we use the following formulae:

P11D Value x BiK CO2 Rate = BiK Value

And then: BiK Value x Tax Rate = Annual Company Car / BIK Tax

£35,465 x 32% = £11,348.80

£11,348.80 x 40% = £4,539.52 Annual tax payable

Or £378.29 per month

The example shows that a 100% electric car (BEV) has a much more advantageous tax treatment for the employee. Note also, national insurance is payable in addition on the BiK Cash Value.

Battery only (BEV) or Plug in Hybrid (PHEV)?

The availability of hybrid powertrains has given drivers/companies the chance to select more environmentally sound vehicles without being limited by the perceived constraints of battery only propulsion, such as electric range.

However, from a benefit-in-kind tax perspective though, selecting a hybrid doesn’t maximise a driver’s tax position, and they will have to decide whether it is worth it.

BEVs – never been a better time to switch, the numbers add up!

Electric only vehicles have been available for a number of years now and adoption has been growing, the government is clearly focused on encouraging more drivers into electric and away from petrol and diesel. 

From a choice perspective, the range of cars available from vehicle manufacturers is increasing and electric range, i.e. the distance that they will travel on a single charge is increasing all the time too. From a charging perspective, the infrastructure available is also increasing and improving all the time.

BEVs are becoming a practical option for more drivers than ever before. For company drivers that want to select an electric car, as this Electric Company Car Tax Guide shows, the taxation treatment of them will encourage more companies to early adopt.

If you’d like more advice about electric cars and maximising the tax benefits we would be happy to help, contact mrtaxman on 07726 424330 or email [email protected]. If you like this post please share or comment below.

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