Business chiefs – have you considered the tax efficiencies of an electric company car?

This year (2020/21) the tax incentives of going greener with an electric car have really been ramped up, when purchased by your company. We have summarised below the key tax benefits you need to know if used solely by yourself (director) and /or your employees.

Benefit in kind

0% benefit in kind for zero emission electric cars since 6 April 2020 (no income tax for individual, no class 1A NIC for company).

Corporation Tax

Electric vehicles qualify for 100% first year allowances which means the company would save £4,560* in corporation tax in the year of purchase.

VAT

As a general rule of thumb, VAT cannot be claimed back on cars, whether electric or not, unless they meet certain strict conditions, are purchased from new and are used “only for business” or as part of the business’ trade eg. a taxi.

What else is there to know:

Pure electric cars do not pay Vehicle Excise Duty (ie. road tax)

Benefit in kind will rise to 1% (2021/22) and 2% (2022/23) of list price, which is then subject to income tax and company class 1A national insurance.

* Tax example above based upon the purchase of a £24,000 list price pure electric car.

With expected company and personal tax increases coming later this year, it is worth exploring new options to restructure your costs to implement tax savings. Vehicles have always been one costly area for business owners who spend most of their time doing business miles.

Take note on motorbikes

Albeit this post features electric cars, you may not know that a company can claim 100% of the cost of a motorbike in the first year of purchase against its profits subject to corporation tax (if motorbike is registered after April 2009). You can also reclaim the VAT if only used for business. However there is a benefit in kind but this is a fixed 20%, therefore if a motorbike costs £7,000, the annual income tax cost to the individual would be £560 and £153 to the company (after corporation tax relief). Proving two wheels may indeed be more tax efficient than four.

 

If you would like to discuss any of the above in further detail please do not hesitate to click the call-back button or contact us on (0)1730 719250.

 

Information correct as at September 2020

 

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