Tax benefits of Electric Cars
Updated: Jul 19, 2022
Driving an electric car has many advantages: it's good for the environment, they cost less to run, they have lower maintenance costs as there are fewer moving parts, and they hold their value better than petrol or diesel cars. And on top of that, there are various tax benefits if you buy one through the company, so let's have a look at those.
Here is an article from AutoTrader to help you understand the sustainability of electric cars.
Buying a car through your business
You can buy any car through your business, but you'll always have to pay a Benefit in Kind (BIK) through your personal income tax and the business will have to pay Class 1A National Insurance Contributions (NIC) on it (which are corporation tax deductible, so effectively only account for 81%). But because the government is highly incentivising the purchase of new electric cars, the amount of BIK varies widely depending on which car you buy.
There is also a difference in the amount of Capital Allowance you can claim. For an electric car, you can claim 100% First Year Allowance (FYA), whereas for a petrol car with emissions over 50 g/km you only get a 6% Writing Down Allowance (WDA) per year.
Let's look at 2 examples of commonly bought business cars: a petrol Audi A5 and a Tesla Model X. The percentage of BIK you have to pay depends on the emissions, with the highest percentage being 37% for emissions over 160g/km and the lowest being 2% for the 0 emissions of completely electric cars. Here's how the 2 cars compare:
So if you're a higher rate taxpayer, driving 10,000 miles in your brand new Tesla Model X, it will only cost you £720 per year in personal tax and it will save the company £17,100 in corporation tax and only cost £271 in NIC + £500 mileage if you charge the car at home. A total benefit of £16,329 to the company.
The Audi on the other hand will personally cost you £7,400 per year, save the company only £570 in corporation tax and cost them £2,784 in NIC + £4,500 mileage. A net cost of £6,714 to the company.
And then there are some additional benefits when you buy a fully electric car:
Up to the end of March 2023, businesses can claim 130% First Year Allowance for the capital expenditure of:
The charging point itself
Alteration of the land for the purpose of installing the charging point
Plant or machinery installed for the sole purpose of providing the charging point with the necessary supply of electricity
Electric vans and lorries
There is also no Benefit in Kind for the provision of a charging point installed at home (there would be if the car was owned privately).
There is no BIK on a charge card given to employees for unlimited access to third-party charging points.
VAT can be recovered on charging points when supplied to the business premises but not to the home address.
There is a £1,500 grant for fully electric cars where the list price (including VAT) is less than or equal to £32,000.
Note that for the benefit in kind the full list price is used, but for capital allowances, the discounted price is used.
Electric Vehicle Homecharge Scheme (EVHS)
Under the EVHS scheme, individuals can claim 75% of the cost of a charger up to £350. This is now only open to homeowners who live in flats or in rental accommodation (flats and single-use properties).
The company can then pay for the net cost of the charger which will be tax-deductible.
And as a side note: here at Focus we do not charge a fee for preparing P11Ds for electric cars. In this small way, we want to contribute to sustainability.