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Tax Benefits Of Electric Vehicles

If you need any other reasons to make the switch from petrol or deisel vehicles, how about the tax benefits of electric vehicles is fantastic.

For owners of small businesses, taking out a company petrol or diesel vehicle can prove to be a false economy.  Often creating more personal tax liability than it saves on the company’s corporation tax bill.

That’s because as the recipient of the car, you’re liable to pay ‘Benefit in Kind’(BIK) tax to reflect the monetary value of the perk.  Depending on the vehicle, that tax can really add up. Indeed, it’s usually more cost-effective to buy the car personally and claim your mileage from the business instead.

There is an exception to this rule though. A change being driven by the rapid rise in electric and hybrid vehicles.

As electric cars become ever more accessible and the Government offering several tax advantages for low emission vehicles, their popularity continues to grow. We look at what the tax benefits are, and what you need to be aware of when considering an electric or low emission vehicle.

P11D/National Insurance – Tax benefits of electric vehicles

 

Electric cars are increasingly seen as a viable everyday mode of transport, offering many benefits to individuals and businesses alike.  One of the biggest advantages of driving electric is the improvement it can make to the environment we live in.

Switching can bring significant tax benefits of electric vehicles for businesses and its personnel.  For company car drivers and fleet operators choosing an electric car from April 2020.  There will be zero tax on Benefit in Kind (BIK) during 2020 / 2021.  This zero rate also applies to hybrid vehicles with emissions from 1 – 50g/km and a pure electric range of over 130 miles.

In fact, there are now 11 new tax bands for vehicles with emissions of 75g/km and below, some of which are linked to the electric mile range that the vehicle offers. So if you’re thinking of choosing a hybrid vehicle for your business then it’s worth investigating electric car benefits in kind before you choose.

The government has also announced the tax rate for the next three years, helping businesses to plan ahead. The electric car tax on the benefit in kind rate will increase to 1% in 2021 / 2022 and 2% in 2022 / 2023.

Percentage used in tax benefits of electric vehicles (registered after 6th April 2020) 

Vehicle Co2 2020-2021 2021-2022 2022-2023
0g/km
0%
1%
2%
1-50g/km (electric range >130 miles)
0%
1%
2%
1-50g/km (electric range 70-129 miles)
3%
4%
5%
1-50g/km (electric range 40-69 miles)
6%
7%
8%
1-50g/km (electric range 30-39 miles)
10%
11%
12%
1-50g/km (electric range <30 miles)
12%
13%
14%

Electric Vans – Tax Benefit For Electric Vehicles

From April 2021, a zero-emission van will be taxed at 0% of the benefit charge, therefore no benefit in kind charge for an electric van regardless of use.

Enhanced capital allowances of 100% of the cost of a new (i.e. unused and not second-hand) electric car are available to businesses in the year that a vehicle is purchased. Not to be confused with the Annual Investment Allowance, which is not available for any car, the relief is available until April 2021.

Capital allowances – Tax Benefits of electric vehicles

The Government announced in its 2020 Budget that, for expenditure incurred on or after 1st April 2021, a 100% First Year Allowance (FYA) is available for a new car which is an ‘electrically-propelled car, or which has low CO2 emissions.

An ‘electrically-propelled car is a car that is propelled solely by electric power (i.e. it is an All Electric Vehicle, or AEV). A car has low CO2 emissions, where the emissions do not exceed 50g/km (typically, a Plug-in Hybrid Electric Vehicle, or PHEV). 

Congestion charge exemptions

Don’t forget electric cars are also exempt from the congestion charge tax. So, if your company cars are travelling in areas where clean air zones exist or are about to be introduced, then this also adds to the tax savings of electric driving over the year.

The current congestion tax in London costs £11.50 per day per vehicle between 07:00 and 18:00, Monday to Friday.

Pure electric vehicles have no tailpipe, so they don’t  emit any exhaust gases, which reduces local air pollution particularly in congested cities.

Road tax on electric cars

Now that vehicle road tax is based on carbon dioxide emissions, pure electric cars are exempt from first year road tax meaning it’s free to tax them.

All cars registered 1st March 2001 and 31st March 2017, with CO2 emissions less than 100 g/km, are not subject to road tax.

For all cars registered on or after 1st April 2017 the tax bands have changed. Fully electric cars have no tailpipe emissions and are therefore still exempt from road tax. However, some plug-in hybrid electric cars with CO2 emissions less than 100 g/km, may need to pay anything from £0-£135 per year depending on the levels of CO2 emissions.

One thing that many people are not aware of is that all cars registered on or after 1st April 2017 and cost over £40,000, are still liable to pay an additional road tax charge. Electric cars that fall into this category will have to pay £325 per year road tax for the first five years, compared to £475 for petrol and diesel cars registered in the same period.

Energy Savings

Another main advantage of electric cars is they’re extremely cheap to run when compare to petrol or diesel. On average, an electric car costs less than £1.30 to drive 100 miles (this cost is based on the EDF GoElectric 35 tariff during off-peak hours). That’s cheaper than the cost of a morning coffee. The average petrol equivalent, to drive the same miles, would be £10.36

With these huge tax breaks for both business and driver, plus numerous other benefits of ‘going green’ (including reduced road tax, congestion charge exemption), it’s not hard to see why small business owners should be steering towards an electric car…

If you have questions on going electric for your company cars, please give us a call on +44 01234 712840.

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