Should your next company car be electric?


Many business owners are unaware of how much tax benefit an electric company car provides. Thanks to recent changes in tax bands, the company car is finally becoming an attractive perk for business owners again – provided they get with the government’s program when it comes to lowering carbon emissions and pick either a hybrid or fully electric model. The government is not alone when it comes to an interest in electric vehicles. According to Deloitte, the electric vehicle market is set to skyrocket, growing at a compound rate of 29% over the next nine years.

The way a company car is taxed is based on its value and benefit in kind tax rate.. Employees are liable to pay income tax on a company car’s taxable value. You can work out the taxable value of a company car with the following equation: (P11D value – essentially the car’s list price including VAT and delivery charges) x (benefit in kind rate ). The employee then pays income tax on this value at the appropriate level (20% for the basic rate, 40% at the higher rate). Meanwhile, the company must pay national insurance contributions on the car.

Benefit in kind rates  for company cars are set by their carbon emissions. In 2020, the government set benefit in kind tax on electric cars to zero; this year, it has risen to 1%, and from April next year it will rise to 2%. But this is still a huge reduction from the 16% expected before April 2020. Meanwhile, hybrid vehicles, depending on emissions, might have benefit in kind tax rates between 6% and 12%. In other words – they are still a great deal compared to other forms of company vehicle, some of which come with a benefit in kind tax rate as high as 37%.

Beyond benefit in kind tax, you might also make a corporation tax saving with an electric company car. This is because some low emission electric vehicles are available for 100% first-year allowance. In other words, you offset the cost of the car against trading profits in full in the year of acquisition, thereby reducing your bottom-line earnings and, consequently, your corporation tax owed. Given the price tags some of the higher end models come with, this can result in substantial cash flow savings for small to mid-sized businesses.

Electric cars come with their own set of challenges, but those challenges will diminish with time. The UK will continue to develop the charging infrastructure needed to power such vehicles, battery life will lengthen, and range and efficiency will improve. For many businesses, purchasing an electric vehicle will also align them more closely with their brand’s ethical values, and those of their customers. So, for the right business, an electric company car is definitely a sensible choice.

To learn more about the ways in which we can cut your tax bill down to size, contact JW Hinks on 0121 456 0190. Whatever size your business is and whatever industry it operates in, our experienced and professional team can help guarantee you’re not paying more than you should be.

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JW Hinks LLP
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Birmingham B15 3BH

Phone: +44 (0) 121 456 0190
Fax: +44 (0) 121 456 0191