The benefits of an electric vehicle – and we’re not just talking fuel shortages
A select group of drivers are looking particularly less stressed than most on the roads at the moment. It’s likely you can’t hear them coming with their ultra-quiet motors. You’ve probably seen them plugged in to their properties, silently refueling their vehicles. The rest of us however will be battling it out driving petrol station to petrol station to find fuel.
Up until now you may have just thought of electric vehicles as full of limitations be that: having a lower range than its petrol equivalent, too expensive, take too long to charge or even having a lack of charging facilities at your home or on route.
But if you’re looking for your next company car or whether to purchase one through your company – never has there been a better time to make the switch. Not least because you might be the only cars left on the road soon…
There are tax advantages in a number of areas for both the employee and the employer.
Capital allowances
Capital allowances are additional deductions that are made from accounting profits. Brand new electric vehicles are eligible for ‘first year allowances’ which allows a 100% deduction of cost against profits. Second hand electric cars are eligible for the main rate of capital allowances which writes down the value of the asset by 18% on a reducing balance basis.
Compare this to new non-electric cars with CO2 emissions greater than 50g/km which only receive special rate allowances of 6% on a reducing balance basis.
Benefit in kind
The provision of a company car which is used for an employee’s private usage causes a benefit in kind charge. Private usage includes even minor usage such as driving the car home in the evening. This benefit will be subject to income tax on the employee and Class 1A national insurance for the employer. The benefit charged will based on the official list price of the car including additional accessories multiplied by a certain percentage – which is determined by the cars CO2 emissions.
The good news for electric vehicle drivers is that the percentage used to calculate the benefit for fully electric cars with no emissions is 1% for 2021/22. This increases to 2% for 2022/23 to 2024/25.
So a brand new electric vehicle with a list price of £40,000 would only generate a benefit of £400 in 2021/22 (equating to £160 in income tax for a higher taxpayer).
Compare that to a diesel car of emissions of 130g/km, the percentage applied would be 34% generating a taxable benefit of £13,600 for a car of the same value (equating to £5,440 in income tax for a higher taxpayer).
The provision of fuel also creates a benefit in kind charge for petrol and diesel cars, but currently there is no benefit for electricity provided to refuel company cars provided certain conditions are met.
VAT
Cars purchased by a company that are provided to employees for private usage are not eligible to reclaim VAT. This does not matter if the car is electric, petrol or diesel – the rule remains the same.
The above is not an exhaustive list but it covers the key tax benefits of purchasing a new electric vehicle with zero emissions.
If you would like to discuss the tax implications of purchasing a vehicle for your business or any other matters please give us a call on 01303 850992.