Electric cars, should I get one through my business?

At the end of May 2021 there were 260,000 electric cars on the UK roads with 1 in 4 UK households intending to buy electric in the next 5 years.

With a greater range of electric cars on the market and prices coming down, you may be considering going electric and putting it through your business. Let us tell you what the impact of doing this will be.

1. Employee consequences:

Cars paid for by an employer that are available for private use, are a benefit in kind. This means that the employee pays tax on the benefit that they are receiving.

Over recent years, the tax payable on diesel and petrol cars has been rising significantly, making company cars less attractive to employees.

In an effort to increase electric car purchases, the tax for electric company cars was stopped altogether in 20/21. For 21/22, tax is payable on 1% of the list price (compared to up to 37% for petrol cars and up to 41% for diesel!)

For example, if the list price was £50,000, the employee would pay tax on £500. If the employee was a basic rate taxpayer (earned under £50,270) then they would pay 20% tax on this, so tax payable of £100. If the same car was diesel, the tax would be up to £4,100!

It’s easy to see that employees might favour an electric vehicle based on these savings alone.

2. Employer consequences:

As the company car is a benefit provided to employees, the employer must pay National insurance on that benefit. The taxable benefit is still £500 but the employer pays 13.8% NI on this, so a charge of £69. If this was a diesel car, it could be as high as £2,829.

The employer will also benefit from Corporation tax relief. The relief gained depends on whether the car is purchased outright or leased.

If purchased outright, the car could be eligible for first year capital allowances, meaning the taxable profits would be reduced by the cost of the car. For example, the £50,000 car example above would save £9,500 of Corporation tax!

If leased, the company would receive tax relief on the lease payments.

Overall, from a tax perspective, an electric company car is a much more attractive option for both employee and employer (and the planet!). However, there are practical effects to consider such as driving range and charging points when coming to a final decision.

If you’d like any specific advice on the tax effects please get in touch!