Whether you’re environmentally conscious or just after something practical – the choice of electric car models has skyrocketed over the last year or so. More and more well-known brands have launched their own take on electric cars to try and complete with the market leader – Tesla.
Not only is there now more choice to suit your taste, needs and budget, but the government is actively encouraging purchasing and leasing electric company cars with very favourable tax benefits. At the same time, it is taxing traditional petrol and diesel company cars at higher rates – so is 2021 the year to make the switch?
Let’s look at an example from an employee/ director benefit in kind (BIK) perspective – this is how much is added onto your employment income before your income tax is calculated (increasing your taxable earnings).
In the last tax year (2019/20) the taxable benefit rate applied to the list price of an all-electric car was 16%. This has now been dramatically reduced to 0% for 2020/21 with only small increases to 1% in 2021/22 and 2% in 2022/23 (with no further rises expected until at least 2025/26). The rates for CO2 emitting cars vary based on their emissions (as well as electric range for hybrids), however it is possible to have a taxable benefit of up to 37% on CO2 emitting cars!
For this example, we will compare the employee BIK for 2021/22 of two brand new cars of a similar price;
Audi Q8 S line 50 TDI quattro*:
- List price from £67,840
- CO2 Emissions (combined): 219 g/km
Taxable benefit @ 37% of list price = £25,101
Assuming the employee is a higher rate (40%) taxpayer that gives a tax charge of £10,040.
For capital allowances, the company acquiring the car would only qualify for 6% Writing Down Allowance on the cost of the car.
Jaguar I-Pace S*:
- List price from £65,245
- 0% CO2 Emissions
Taxable benefit @ 1% of list price = £652
Again, assuming the employee is a higher rate (40%) taxpayer that gives a tax charge of £261.
For capital allowances, the company would qualify for 100% First Year Allowances on the cost of the car.
As demonstrated from the above, the different is startling!
Not only are the government applying low tax rates to BIKs, but they are also providing grants to reduce the outright cost of brand-new electric cars. There are specific conditions to be met, however providing these are complied with then you could be eligible for up to 35% off the purchase price (capped at £3,000).
Now unlike petrol or diesel vehicles, many employees may require an electric charging point to be installed at their home address or place of work. You may think that this could be a sizeable extra cost, however the government has grants available to subsidise these costs. Again, providing they meet certain conditions, if the employee purchases a charging point at their home with their own money, they can claim a grant of up to 75% (capped at £350 incl VAT) of the cost including installation. Alternatively, if an employer pays for this on behalf of the employee there will be no resulting taxable benefit on the employee providing certain conditions are met. Finally, if the employer installs charging points at the workplace these can be eligible for 100% FYA capital allowances.
There are clearly now substantial tax benefits of switching to a fully electric company car, however they are not cheap and so this must be taken into consideration. With more and more electric cars appearing on our streets is seems that many firms and individuals are taking the plunge, so is 2021 the year you go electric?
For more information on specific conditions in relation to the above, along with information about purchasing hybrids, electric vans, bicycles and motorcycles please get in touch.