Should You Buy an Electric Car Through Your Company?
A company car is one which is purchased and owned by a company but made available for private use by an employee.
Successive governments have increased the personal tax costs of company cars which has meant that having a company car is often seen as expensive and not particularly attractive to the employee.
Personal tax on a company car is calculated based on the Co2 emissions and the list price of the car: essentially, the higher the price and the more Co2 emissions, the more you pay in tax. A more attractive alternative is now a possibility, and if electric cars appeal to you then you could make decent tax savings by purchasing an all-electric car through your company.
What’s Changed?
A zero-emissions vehicle used to attract a benefit in kind rate of 16% which meant that, for example, a £35,000 car would have a taxable value of £5,600. A basic rate taxpayer would be liable for tax at 20% on this value.
From April 2020, the government dropped the benefit in kind rate to zero for all electric cars. This means no personal tax charge for the car! The 0% will remain for tax year ending April 2021 and then increase from April 2021 to 1% then to 2% from April 2022. This means a basic rate taxpayer with a £35,000 car would pay tax of £70 for 2021/22 and £140 for 2022/23. Despite these increases, it is still a significantly lower tax rate than any other types of company car.
Buy or Lease?
There are also decent corporation tax savings if you buy or lease a new electric car. Cars with Co2 emissions below 50kg/km can be eligible for 100% reduction in the first year (this is called enhanced capital allowances), meaning that the full cost of the car can be used to reduce your business profits by reducing the amount of corporation tax you pay. So that £35,000 car will see corporation tax reduced by £6,650 at the current level of 19%. If you prefer to lease a car rather than buy, you can only offset lease payments against your profits.
So, investing in electric cars through your company can bring substantial tax reductions as the law stands at the moment. As a note of caution, the variation within the charging point infrastructure and driving range are still an issue with many electric cars, so this could present problems for high mileage drivers. Replacement batteries could also pose an issue of environmental and financial concern.
Things are improving all the time though as prices come down, more charging points are introduced and battery technology advances, so electric company cars may well be the way to go for some.