The Tax Benefits of Electric Cars for Business

Electric vehicle being charged

There has never been a better time to introduce electric vehicles into your business. Thanks to recent significant developments of the ultra-low emission vehicles market and its accompanying incentives, including company car tax relief and capital allowances on electric cars, the tax benefits are only growing.

Electric vehicles can also help your organisation meet climate change targets by lowering CO2 emissions and contributing to an increase in air quality. Whether you’re looking to electrify your employee company car scheme or fully charge your business fleet, it certainly pays to go electric.

We explain what all the buzz is about, by breaking down the benefits of ultra-low emission vehicles for business.

Amping up the advantages

Electric cars are no longer an out-of-reach option for most, thanks to Government incentives making hybrids and EVs more affordable. With everything from tax breaks and congestion charge exemptions to Government grants available, the eco-conscious consumer can now make an economical choice of transportation that benefits the environment as well as their finances.

It certainly helps that ULEVs are now capable of much longer ranges. Many new models offer up to 300 miles on a single charge, meaning electric cars are now a viable option for business use with a little more planning of your journey beforehand.

With the ban on the sale of new petrol, diesel cars and hybrid vehicles now brought forward from 2040 to 2035, it’s inevitable that many of us will flick the electric switch sooner rather than later.

The case for ULEV company cars

Company cars often create more personal tax liability than they save on an organisation’s Corporation Tax bill, which means many employees choose not to have one. However, with ultra-low emission vehicles, the perks are now considerably greater.

The first of these perks for the employee is of course the fact that pure electric cars are exempt from Vehicle Excise Duty. Low emission vehicles and plug-in hybrids that emit less than 75/km CO2 also pay less road tax in the first year, meaning it pays to go green.

Secondly, as electricity is not classed as a road fuel, ultra-low emission vehicles have no fuel benefit charge. This means that employees don’t have to pay Benefit in Kind on the electricity their employer provides them to charge an electric company car.

Also, electric vehicles have fewer moving parts that are susceptible to damage, so the maintenance requirements are lower and less costly than regular vehicles – another point to consider when shopping for a new company vehicle.

Government support for ULEVs

As of February 2020, the Government will grant 35% of the purchase price of new ultra-low emission vehicles (up to a maximum of £3,500). The grant amount has fallen from £4,500 since early 2019 and could be subject to change during the budget in March, though for now, it’s a great bonus to be taken advantage of.

On top of this, those with new ultra-low emission vehicles (less than 50g/km CO2) are eligible for a £500 grant towards the cost of installing a home charging unit, meaning you can power up at work and at home.

Most of us have heard of the Government-led Cycle to Work scheme, but there’s also a salary sacrifice scheme in place for green motorists, known as ‘Optional Remuneration Arrangements’. Employees can drive an electric car in exchange for a portion of their gross salary — that is, before Income Tax and National Insurance have been taken off — resulting in a significant net saving of up to £300 per month.

Further electric exemptions

For those driving in London, electric vehicles are also exempt from the Congestion Charge. From October 2021, the Ultra-Low Emission Vehicle Zone is set to expand considerably from Central London, so if you regularly drive in London and only have a plug-in hybrid at present, 2020 is the perfect time to make the switch to a ULEV.

Big breaks for business

For employers looking into electric company cars, there are now considerable savings to be made. Pure electric vehicles are exempt from company car tax from April 2020 onwards, with Benefit in Kind rates increasing to 1% from April 2021 and 2% from April 2022. This is compared to a maximum of 37% charged on the least CO2 efficient vehicles. Meanwhile, plug-in hybrids and other electric vehicles that emit 1-50g of CO2/km fall under five new tax bands from 2020/21.

As with the Benefit in Kind tax, employers’ Class 1A National Insurance contributions are linked to a car’s CO2 emissions and P11D (purchase cost) value. As a result, employers offering staff brand new electric cars at a reduced rate can, in turn, benefit from reduced NI contributions.

Additionally, business owners can claim capital allowances on cars bought and used within their company, meaning they can deduct part of the value from their profits before paying tax. Until 1 April 2021 a brand new low or zero emission car can qualify for a 100% first-year allowance (FYA) if its CO2 emissions are no higher than 50g/km.

BiK rates from April 2020

CO2 emissions Electric-only range Petrol hybrid Diesel hybrid
0 All (pure electric) 2% 2%
1-50 130 or more 2% 6%
1-50 70-129 5% 9%
1-50 40-69 8% 12%
1-50 30-39 12% 16%
1-50 Up to 30 14% 18%

Top tax benefits

Here’s a roundup of the top financial benefits of pure electric vehicles:

  • Zero Vehicle Excise Duty
  • Zero fuel benefit charge
  • £3,500 towards the cost of the vehicle
  • £500 towards the cost of the home charging unit
  • Zero company car tax
  • Zero Congestion Charge
  • Reduced NI contributions

Need support with the tax system for electric business vehicles? TBL Accountants can help. Please get in touch with our team for more guidance on Company Car Tax, Benefits in Kind and more.

TBL Accountants are your local accountancy firm operating in Southend and across Essex. We specialise in a variety of services as personal, business, and charity accountants. Want to find out more? Get in touch with our team today.

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