01923224411 |
By Robert Marsden
Director
Posted on: 15 October 2018

Electric Company Car?

Electric cars represent a cleaner, greener way to use everyday transport. But they also offer compelling financial incentives for business and personal purchasers. These benefits include:

  • 100% First Year Allowance for business owners available until April 2021
  • UK Plug-in Car Grant of up to £3,500 (reduced from £4,500 on 09.11.2018)
  • Significantly Reduced Benefit in Kind Taxation for Company Car Drivers and reduced Employer Class 1A National Insurance Contributions (company cars only)
  • Exemption from London Congestion Charge - £10 annual registration charge
  • Significant Fuel Savings vs. a comparable Combustion Engine Car and no car fuel benefit for company cars
  • They are exempt from paying road tax, providing

Company - Capital Allowances

Capital allowances at 100% provide a generous cash flow advantage by reducing corporation tax in the year of purchase for electric cars.  Most companies change cars after 3 – 4 years and once the vehicle is sold some of the tax cash flow advantage is clawed back; the amount depends on the resale value of the car.  Some electric vehicles depreciate substantially slower than petrol/diesel thereby retaining more value on sale though this is dependent on the make and model of car.

Personal Taxation and Benefit in Kind

Electric company cars can save employees significant sums of tax.

Company car benefit in kind

Cars producing 0-50 g/km of CO2, such as electric cars, have an appropriate percentage of 13% (2018/19) and 16% (2019/20) before dramatically dropping to 2% in 2020/21.

This percentage is multiplied by the list price to give the taxable benefit in kind figure which is then subject to income tax by the employee.

Fuel benefit

Where the employer provides workplace electric charging for the battery there is no fuel Benefit in Kind.

With a combustion engine car the appropriate percentage is multiplied by £23,400 thus a car costing £66,000 with 185 g/km will have an appropriate percentage of 37% giving a fuel benefit of £8,658 which is then charged to tax, in this example at 45%.

Example:

Tax consequences for the employee (45% tax payer) of a company car

Example - a fully electric car costing £66,000 (category 1) and comparing to a combustion engine car costing the same £66,000.

Popular category 1 electric cars are Tesla, Jaguar I-PACE, Nissan Leaf, BMW i3 and i8, Citroen Zero etc – see list at https://www.gov.uk/plug-in-car-van-grants     

 

 

2018/19

2019/20

2020/21

 

 

Electric car

Combustion engine car

Electric car

Combustion engine car

Electric car

Combustion engine car

Cost of car - category 1

66,000

66,000

66,000

66,000

66,000

66,000

P11D value of car

66,000

66,000

66,000

66,000

66,000

66,000

CO2 g/km 19 inch wheels

0

185

0

185

0

185

Taxable benefit

13%

37%

16%

37%

2%

37%

Amount chargeable

8,580

24,420

10,560

24,420

1,320

24,420

Tax as 45% tax payer

3,861

10,989

  4,752

10,989

   594

10,989

Fuel benefit - % times £23,400

-

8,658

-

8,658

-

8,658

Tax as 45% tax payer

-

3,896

-

3,896

-

3896

 Tax as 45% tax payer car and fuel benefit

3,861

14,885

 4,752

14,885

   594

14,885

 

Employee

 

 

 

 

Summary - showing benefit of electric car

 Saving

 Electric

 Petrol/Diesel

 

 Employee tax rate

 

45%

45%

 

2018/19

11,024

3,861

14,885

 

2019/20

10,133

4,752

14,885

 

2020/21

14,291

   594

14,885

 

Benefit of electric car over 3 years

35,448

9,207

44,655

 

 

In this example, over a three year period the employee can, by choosing an electric company car save over £35,000 in tax compared to a non-electric car

It should also be noted in this example if the combustion engine car is kept for 4.5 years the employee will have paid as much in tax as the purchase price of the car.

UK Plug-in Car Grant

There are 7 categories of electric vehicles, based on CO2 emissions. The grant depends on which category the vehicle is in.

Not all electric or hybrid vehicles are eligible for a grant - only vehicles that have been approved by the government and are included in the Category 1 list. 

Category 1 Cars

These vehicles have CO2 emissions of less than 50g/km and can travel at least 112km (70 miles) without any CO2 emissions at all and include Jaguar I-PACE’s, BMW i3, Nissan Leaf. There is no restriction on cost.

For the full list see https://www.gov.uk/plug-in-car-van-grants

The grant will pay for 35% of the purchase price for these vehicles, up to a maximum of £4,500 (reduced to £3,500 from 09.11.2018).

Category 2 Cars

These vehicles have CO2 emissions of less than 50g/km and can travel at least 16km (10 miles) without any CO2 emissions at all: These vehicles must cost less than £60,000.

The grant will be removed on 09.11.2018, previously it paid for 35% of the purchase prices for these vehicles, up to a maximum of £2,500. 

Category 3 Cars

These vehicles have CO2 emissions of 50 to 75g/km and can travel at least 32km (20 miles) without any CO2 emissions at all: These vehicles must cost less than £60,000.

The grant will be removed on 09.11.2018, previously it paid for 35% of the purchase prices for these vehicles, up to a maximum of £2,500. 

For the full list see the above link https://www.gov.uk/plug-in-car-van-grants  .

If you would like further information then please contact Robert Marsden, either by email at robert.marsden@myersclark.co.uk, or phone him on 01923 224411. 

Robert Marsden
Director

Robert qualified in 1981 at Myers Clark, and has considerable knowledge in Private Client matters, predominantly in taxation. Robert works with individuals and business across many sectors, but his specialisms include; engineering, printing and