Tax on company cars:

Does it now pay to go electric with your fleet?

It isn’t just the progression in technology and infrastructure that is driving more companies to consider part or fully electric fleets. There are now significant taxable benefits with making the move to an electric car.

In our latest Q&A, Nicola McCartan, a member of the Chartered Institute of Taxation and the Association of Taxation Technicians, at M. B. McGrady & Co Chartered Accountants is providing advice and guidance to clients interested in making the switch.

To help you understand the benefits behind a move to electric, Nicola answers some of the most common questions being asked.

How are company cars taxed?

If you have a company car you pay tax on the calculated benefit in kind.  The benefit is calculated as a percentage of the list price of the car.  The percentages to be used are set by HMRC and depend on the CO2 emissions.  The higher the CO2 emissions the higher the benefit will be.

If a car had CO2 emission of 149g/km the percentage is 32%.  If the list price of the car is £30,000 then the benefit in kind would be £9,600.  The tax on this would be £3,840 for a higher rate tax payer.  The tax due on the car benefit is generally deducted from your salary through Pas As You Earn (PAYE).

What are the main benefits in a company director choosing an electric vehicle?

The main benefit for a director, or an employee, is the tax saving. 

If a director is given a fully electric company car with a list price of £30,000 for 2021/22 the taxable benefit in kind would be £300 so for a higher rate taxpayer the tax charge would be £120.  Compared with the previous example there is a tax saving of £3,700 per year.

There is also no taxable benefit if an employer pays for the electric used to charge a pure electric company car whether this is at the workplace or elsewhere.              

The company can reimburse an employee/director using a fully electric company car for each business mile at a rate of 4 pence per mile.

What are the benefits for the company?

From April 2021 only cars with no CO2 emissions will qualify for 100% First Year Allowances.  Previously, cars with very low CO2 emissions also qualified for this allowance.

Therefore, if a company spent £30,000 on a new fully electric car the Corporation tax saving in the year of purchase would be £5,700 (£30,000 x 19%).  If, instead, the same was spent on a petrol car the tax saving in the year of purchase would be £342.

What about e-charging points at the workplace or employees’ homes?

A 100% First Year Allowance is also available for expenditure on new, unused, electric charging point equipment installed solely to charge electric vehicles, incurred before 31 March 2023.  This could be installed at the workplace or the employee’s home. 

There is no taxable benefit for the employee if an employer pays for a vehicle charging point to be installed at an employee’s home.

Overall are electric cars the way forward for businesses?

From a tax perspective absolutely! There are big tax savings for both companies and employees by providing electric cars.  But electric cars are relatively expensive to purchase, and from a personal perspective, many people still won’t want to make the switch until charging points are more readily accessible. 

In the future, I would imagine there will be more reasonably priced electric cars and they will become more popular, however, this will probably mean the tax incentives will decrease over time too.

Want to know more?
If you’re a business owner thinking of making the switch to an electric vehicle, there is no better time than now.
If you have any queries, or if you are keen to know more about the tax benefits on offer, feel free to get in contact with Nicola McCartan, Chartered Accountant and Tax Manager at [email protected] or on 028 9031 6950.