Electric car still make tax sense

As many of our readers will know by now electric cars can be a very tax efficient way of extracting value from your limited company. This is due to the fact that the Benefit-In-Kind rates on electric vehicles are currently very favourable, especially compared to petrol and diesel vehicles.

Where a limited company makes an electric vehicle available to employees or directors for private use a Benefit-In-Kind charge arises. The value of the Benefit-In-Kind is calculated by using the list price of the vehicle and multiplied by a percentage set by HMRC (shown below). This taxable benefit is then subject to Income Tax by the individual receiving the benefit, and the employer would be liable for Class 1A National Insurance Contributions on the benefit value.

The company will need to prepare a P11D for the employee and make relevant submissions to HMRC regarding the car, and other taxable benefits. Some benefits can be taxed via the payroll to ease the administrative burden.

The lower the relevant percentage the lower the Benefit-In-Kind charge will be, as such all electric vehicles are the most tax efficient option. Coming in close second are hybrid vehicles with good electric only ranges, in the table above it shows that the higher the electric only range, the lower the relevant percentage is.

Depending on how the car is acquired will depend on the tax treatment of the cost.

For a lease rental the whole premiums are tax deductible through the profit & loss, giving full tax relief. Additionally, if the company is VAT registered 50% of the VAT can be reclaimed on the car lease costs, on any maintenance elements the VAT reclaimable is 100%.

If you purchase the car outright or via a form of hire purchase, then you will obtain tax relief by way of capital allowances. Where the car is fully electric (or with 0g/km emissions) First Year Allowances will be available giving tax relief at 100% of the cars cost against profits in the year of purchase. For cars with emissions higher than 0g/km they will either go into the main or special rate pool and receive either the 18% or 6% Writing Down Allowance. Therefore, from a tax perspective, the lowest emission options are going to yield the highest tax benefit.

Below we have listed some attractive vehicle options and their respective benefit values:

Where fuel is made available to the employee or director for private use, and the amount is not made good a Fuel Benefit will arise. For more information on this see our other articles.