Owning an electric company car was a huge tax-free benefit for 2020/21 but, unfortunately, this will no longer be the case for 2021/22.
Although no longer tax-free, electric and low emission cars remain a tax-efficient benefit that anybody can enjoy.
How are electric cars taxed?
A taxable benefit occurs when there is some private use of that car. Under the company car tax rules, the taxable amount (the cash equivalent value) is based on the ‘appropriate percentage’ of the cost of the car and any optional accessories, after deducting any capital contribution (deposit) made by the employee up to a maximum of £5,000.
The amount is proportionately reduced where the car is not available throughout the tax year and is further reduced to reflect any contributions made by the employee for private use.
What is the appropriate percentage?
This is based on the level of C02 emissions from the car. For zero-emission cars, the appropriate percentage for electric cars is 1% for 2021/22, whereas previously this was set at 0%. It doesn’t matter when the car was first registered.
Although an increase, it’s nominal and the tax cost of an electric company car remains lower than a non-electric car.
Jenna has an electric company car with a list price of £30,000. The car was first registered on 1 April 2020.
The appropriate percentage for an electric car in 2020/21 was 0%, meaning that Jenna was able to use her car for private use completely tax-free.
From 2021/22 the appropriate percentage for an electric car is 1%. The taxable amount of Jenna’s car is £300 (1% of £30,000).
Jenna is a higher rate taxpayer, so she will pay tax of £120 of her company car, ie 40% x £300. If Jenna were a basic rate taxpayer, she would pay £60 in tax. What a deal!
Her employer will also pay Class 1A National Insurance of £41.40, ie £300 at 13.8%.
Be aware that, from 2022/23, the appropriate percentage will increase to 2%.
What about low emission cars?
An electric car may not be for you, but there are still ways to be more tax-efficient for company cars by choosing a low emission car.
From 6 April 2020, there was a change in how CO2 emissions are measured.
For 2020/21 and 2021/22, the appropriate percentage not only depends on its CO2 Emissions but also on the date on which the car was first registered.
If you have a car that is within the 1-50g/km band, there is an additional factor to consider – the car’s electric range (or zero-emissions milage). This is the distance that the car can travel on a single charge.
The following table shows the appropriate percentages applying for low emission cars for 2021/22.
|Appropriate percentage for 2021/22 for cars with CO2 emissions of 1—50g/km|
|Electric range||Cars first registered before 6 April 2020||Cars first registered on or after 6 April 2020|
|More than 130 miles||2%||1%|
|30 – 39 miles||12%||11%|
|Less than 30 miles||14%||13%|
The above table illustrates that choosing a car with a good electric range can reduce the tax charge dramatically.
If Jenna’s £30,000 car is a low emission car with an electric range of more than 130 miles, and was registered on 6 April 2020, the taxable amount is £300, ie £30,000 at 1%.
In comparison, if Jenna’s vehicle was registered before 6 April 2020 with an electric range of less than 30 miles, the taxable amount is £4,200, ie £30,000 at 14%.
You could save yourself a huge amount of money by choosing a newer car with a higher electric range.
Keeping the environment clean by choosing a greener model feels better when you’re lowering your tax bill, doesn’t it?
If you would like to find out more about electric cars, you can watch our handy video below. https://www.youtube.com/watch?v=B3z40VDjKtU
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