Electric cars – are they right for your business?

There is no doubt that electric cars are more environmentally friendly and for some companies, moving to a fleet of electric vehicles is part of their commitment to sustainability and move to net carbon zero.

There are also tax benefits by changing to electric. While electric cars are exempt from Vehicle Excise Duty (VED), companies still need to pay the Benefit in Kind (BIK) tax currently set at 2%, but electric cars are still the cheapest option.

If a company car is used or available for personal reasons, for example, on a trip to the shops or visiting friends, HMRC sees it as a benefit, and it will be treated as a BIK for tax purposes. This has implications for the employee and the company.

The company pays tax based on a combination of the P11D (HMRC’s valuation of the car, including VAT and delivery fees) and how much CO2 the car emits.

The employee pays tax based on the (P11D value) x (BIK band) x (income tax bracket). HMRC’s www.cccfcalculator.hmrc.gov.uk can help.

The lower emissions rate is the main reason why electric cars are more tax beneficial than petrol or diesel vehicles. Petrol or diesel cars can attract CO2 emissions of up to 37% whereas pure electric cars are currently 2%.

Companies can apply tax relief on the assets they buy reducing their corporation tax and can claim a 100% first-year allowance on electric vehicles, getting full tax relief on the car’s value.

Mileage allowances paid on electric cars are at a much-reduced rate of 4p per mile, there is no Class 1A NI charge for the employer and tax incentives exist on the installation and use of charging points.

To make an informed decision about the tax implications of electric cars, we advise that you speak to your accountant first. For further advice, please contact me or your local Westcotts office.