Considering purchasing an electric car for your business? Here are three reasons to charge down to your nearest dealership…
Data from the Society of Motor Manufacturers and Traders (SMMT) for May 2022 revealed an 17.7% increase in the sale of new electric cars, compared to 2021. That represents one in eight new cars sold. When you include hybrid vehicles, the figure rises to three in 10 new cars.
So what makes electric cars so popular? Here are our top three reasons…
1. Benefit in kind tax
When compared to petrol or diesel vehicles, there are now significant taxable benefits for owning an electric company car. This is because high emission vehicles create a larger personal tax liability which outweighs the corporation tax saving.
Employees with company cars pay benefit in kind tax which reflects the emissions and monetary value of the vehicle. To mitigate the tax liability, employees either opt for low-emission cars or decide to use their own car and claim back mileage.
If there are fewer company cars, businesses will miss out on tax deductible maintenance expenses, capital allowance reliefs and reclaiming VAT.
The advantage of electric cars is that the benefit in kind tax rate is only 2%, and it will be frozen for the 2022/23, 2023/24 and 2024/25 tax years. To put this into perspective, the most polluting petrol or diesel models attract a rate of 37%!
Businesses pay Class 1A National Insurance (15.05%) based on the car’s P11D value, which includes the price of the car including VAT, options and the delivery fee – as well as its CO2 emissions. This is calculated as (P11D Value) x (BIK tax rate) x 15.05% = Class 1A National Insurance due.
The company must also declare this via a P46 (Car) form to HMRC each year.
For employees, benefit in kind is calculated by their income-tax bracket, the vehicle band and its P11D value. Use this formula: (P11D value) x (BiK band) x (income-tax bracket) = BiK tax.
You can find a full list of benefit in kind rates on the HMRC website.
2. Capital allowances
The good news keeps on coming as companies planning to buy rather than lease their fleet can qualify for a 100% first-year allowance (FYA), as long as CO2 emissions do not exceed 0g/km. This means your business could get full tax relief on the cost of an electric car in the year of its purchase. A vehicle worth £35,000 would yield a £6,650saving in corporate tax relief.
Businesses can also claim the new super-deduction relief, which offers 130% first-year allowance on qualifying electric charging points for cars and vans. To qualify, the company must use the charging point in their own business. This will expire on 31 March 2023.
The 100% FYA applies to zero-emission vans, where the vehicle is purchased new and unused before 1 April 2021. Commercial vehicles already qualified for 100% relief under the Annual Investment Allowance.
3. Other tax benefits
The government’s Office for Zero Emission Vehicles (OZEV) plug-in car grant is effectively a discount on the price of an electric vehicle.
The amount depends on the vehicle type, so cars get 35% off the purchase price, up to a maximum of £1,500; motorcycles and mopeds can get 35% off, up to a maximum of £500 (£150 for mopeds); vans can get up to 35% off, up to a maximum of £5,000 (£2,500 for small vans).
All-electric vehicles are exempt from road tax until at least 2025. There are reduced rates for plug-in hybrid electric vehicles (PHEVs).
Finally, electric cars are exempt from London’s Ultra Low Emission Zone (ULEZ) and congestion charge.
Our friendly team provides a full range of tax planning advisory services for small businesses. Call us on 0845 606 9632 or email email@example.com.
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