Electric cars can be a tax efficient benefit for employees. Watch our video to learn more.
The tax on company cars often means that for a business owner, it’s just not worth putting a car in the company.
Any savings that the company may make on Corporation Tax are far outweighed by the personal tax payable by the business owner, due to the Benefit in Kind of having the car and any fuel as well.
However, an exception is on an electric car or a hybrid with low emissions. If you buy one of these, you can help the environment and also help your tax bill.
So, how does it work?
At the moment, in the 2020/21 tax year, if you have a car with low emissions, which basically means under 50 grammes of CO2 per kilometre of emissions, and an electric mile range of 130 miles or more, you pay zero Benefit in Kind tax.
In the 2021/22 tax year, that will rise to a 1% Benefit to Kind. And the following year it will rise to 2% Benefit in Kind.
HOW DOES THAT COMPARE TO PETROL/DIESEL?
The highest emission petrol cars have a 37% Benefit in Kind. And even a standard mid-range car is going to be around 25 to 30%. So that’s a huge saving.
This reduction in Benefit in Kind tax for low-emission cars, added to the increased number of models and mileage range that are out there on the market right now, have made these vehicles increasingly attractive as company cars, both for the employers and employees.
And doubly so if you’re the employer and the employee.
WHAT ARE THE NUMBERS?
To give you an example, if you were to buy a new car with the list price of forty thousand pounds with CO2 emissions of 130 grammes per kilometre, ie a relatively standard saloon, it will have a Benefit in Kind percentage of 29% in 2020/21, rising by 1% per year for the next couple of years.
This will give a taxable benefit in kind value of £11,600, which means that a higher-rate taxpayer would have a tax bill of £4,640, or a basic rate taxpayer would pay £2,320.
The Employer would also pay Class 1A National Insurance of £1,601.
However, an electric or zero-emission car with the same list price would not have any tax at all. That is a huge saving.
HOW ABOUT CAPITAL ALLOWANCES?
When you buy an electric car, you also have to consider capital allowances. Another benefit of an electric car is that they get the whole value of the car written off for tax purposes in Year 1.
Again, if you have a £40,000 car, you’d get tax relief of £7,600 in the company’s Corporation Tax computation in that year.
All in all, electric cars are very tax-efficient and, of course, a huge help for the environment.
I hope you found that useful. If you’d like to know any more, please get in touch with us.