Electric cars & the basic tax planning benefits – a guide

Since April 2021, there has been a fundamental change to the tax regime for new fully electric company cars. There are significant benefits for both the individual and the company.

Individual

For the 2019/2020 tax year, the benefit in kind (BIK) rate for electric cars was 16% on the list price of the car.  In 2021/2022 and 2022/2023 the tax rate is 2%.  To illustrate the personal tax payable on a £40,000 fully electric company car is as follows:

2019/2020 2021/2022 2022/2023
Benefit in kind
£6,400
£800
£800
Tax for a basic rate tax payer
£1,280
£160
£160
Tax for a higher rate tax payer
£2,560
£320
£320

As can be demonstrated there is a significant reduction in personal tax payable on a fully electric company car.

Company

The company can claim tax relief via first year capital allowances on the full price of the electric car.  In our example above, a fully electric car with a cost to the company of £40,000 will attract tax relief at 19% amounting to £7,600.  Therefore the car would cost the company £32,400.  The capital allowances rules cover cars bought outright or via hire purchase.  Different rules apply when a car is leased.

The company will have to pay Class 1A National Insurance on the BIK value.  In 2021/2022 the rate is 13.8% increasing to 15.05% in 2022/2023.  In our example above, national insurance payable on £800 benefit in kind value is £110.40 in the 2021/2022 tax year and £120.40 in the 2022/2023 tax year.

Leased Electric Cars

Fully electric leased cars will not be eligible for capital allowances.  The lease payments are an allowable expense in the company.

Charge points

Where an individual is provided with a fully electric company car, a charge point can be installed at the company premises and the home of the individual and this does not result in a benefit in kind for the installation or the subsequent use of the charge point.

For further information please contact Lee Cramer at lee.cramer@bushaccountants.co.uk.

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