{"id":5533,"date":"2024-01-19T11:06:12","date_gmt":"2024-01-19T11:06:12","guid":{"rendered":"https:\/\/www.bainesjewitt.co.uk\/blog\/?p=5533"},"modified":"2024-01-19T11:06:14","modified_gmt":"2024-01-19T11:06:14","slug":"so-you-want-an-electric-company-car-the-tax-perspective","status":"publish","type":"post","link":"https:\/\/www.bainesjewitt.co.uk\/blog\/so-you-want-an-electric-company-car-the-tax-perspective\/","title":{"rendered":"So, you want an electric company car? The tax perspective"},"content":{"rendered":"<p>Environmental consciousness is becoming more and more aligned with business operations, and electric vehicles (EVs) are becoming a popular choice for company cars as a result.<\/p>\n<p><!--more--><\/p>\n<p>This shift is as much about saving the planet as it is about the significant tax incentives on offer.<\/p>\n<p>Here are our thoughts on the electric company car debate and what we are currently recommending to our clients.<\/p>\n<p><strong>What are the tax implications of electric company cars?<\/strong><\/p>\n<p>The Government, in its push towards a greener future, has adjusted the tax landscape to favour electric vehicles over petrol and diesel.<\/p>\n<p>This meant a look into the Benefit-in-Kind (BIK) Tax, which applies to company cars.<\/p>\n<p>BIK is essentially a tax on the benefit of having a company car that can be used privately.<\/p>\n<p>The amount of BIK Tax you pay hinges on several factors, including the car&#8217;s value and its environmental impact, measured by CO2 emissions.<\/p>\n<p><strong>Key factors influencing BIK Tax<\/strong><\/p>\n<ul>\n<li><strong>The car&#8217;s value (P11D value):<\/strong> The list price of the car, including VAT and any extras, determines the starting point for BIK Tax calculation.<\/li>\n<li><strong>Environmental impact:<\/strong> For electric vehicles, which have zero CO2 emissions, the BIK rate is significantly lower compared to petrol or diesel cars.<\/li>\n<\/ul>\n<p>The taxable value is found by multiplying the car&#8217;s P11D value by the BIK rate, currently at two per cent for EVs.<\/p>\n<p>For example, a \u00a330,000 electric car incurs a taxable benefit of \u00a3600 (\u00a330,000 x 0.02).<\/p>\n<p>The BIK rates for electric vehicles are set to increase slightly in the coming years but will remain lower than those for traditional cars.<\/p>\n<p>By 2027\/28, the rate for EVs will be five per cent.<\/p>\n<p><strong>Advantages of electric company cars<\/strong><\/p>\n<p>We advise our clients that there are generally three key advantages to electric company cars.<\/p>\n<p><strong>Tax efficiency through salary sacrifice schemes<\/strong><\/p>\n<p>One attractive route for obtaining an electric company car is through the <a href=\"https:\/\/octopusev.com\/salary-sacrifice#:~:text=It's%20a%20way%20to%20get,National%20Insurance%20and%20Income%20Tax.\">Electric Vehicle Salary Sacrifice Scheme.<\/a><\/p>\n<p>Here, employees agree to forgo a portion of their pre-tax salary in exchange for a non-cash benefit, like an electric company car.<\/p>\n<p>The beauty of this arrangement lies in its tax efficiency.<\/p>\n<p>Since the sacrifice is made from pre-tax salary, it lowers the employee\u2019s taxable income, leading to reduced Income Tax and National Insurance Contributions (NICs) for both the employee and employer.<\/p>\n<p><strong>Lower benefit-in-kind rates for EVs<\/strong><\/p>\n<p>The BIK rates for electric vehicles are considerably lower compared to traditional petrol or diesel cars.<\/p>\n<p>This makes EVs particularly appealing in salary sacrifice schemes due to the substantial tax savings.<\/p>\n<p>As of now, the BIK rate for pure electric vehicles is a mere two per cent, a figure set to remain stable until the 2024-2025 tax year.<\/p>\n<p>This is significantly lower than the BIK rates for petrol and diesel vehicles, which can climb <a href=\"https:\/\/www.gov.uk\/guidance\/company-car-benefit-the-appropriate-percentage-480-appendix-2\">up to 37 per cent<\/a>.<\/p>\n<p><strong>Corporation Tax relief on leased electric cars<\/strong><\/p>\n<p>For businesses, leasing electric cars offers an added perk.<\/p>\n<p>The lease payments are tax-deductible as a business expense, reducing the company\u2019s taxable income and, in turn, its Corporation Tax bill.<\/p>\n<p>This, coupled with the low BIK rates, positions EVs as a financially savvy choice for businesses.<\/p>\n<p><strong>Leasing vs purchasing an EV<\/strong><\/p>\n<p>The choice between leasing and purchasing an EV carries different tax implications.<\/p>\n<p>For businesses, leasing an EV means the lease payments are deductible business expenses.<\/p>\n<p>However, if a business purchases an EV, particularly one with low CO2 emissions, it can claim a 100 per cent first-year allowance, allowing the deduction of the full cost from their profits before tax in the year of purchase.<\/p>\n<p>For individuals, leasing an EV doesn&#8217;t offer a tax deduction for the lease payments as these are personal expenses.<\/p>\n<p>But, if the EV is used as a company car, the individual benefits from the lower BIK rates.<\/p>\n<p><strong>Claiming mileage on leased electric cars<\/strong><\/p>\n<p>Business mileage in a company electric car can be claimed, assuming the travel is for business purposes.<\/p>\n<p>The HM Revenue &amp; Customs (HMRC) approved rate stands at 45p for the first 10,000 miles and 25p thereafter.<\/p>\n<p>It\u2019s important to note that this does not cover travel between home and a regular work location, as this is considered commuting and is not claimable.<\/p>\n<p><strong>Future outlook: BIK rates and EV adoption<\/strong><\/p>\n<p>Looking ahead, the BIK rates for electric cars will undergo a gradual increase \u2013 three per cent in 2025\/26, four per cent in 2026\/27, and five per cent in 2027\/28.<\/p>\n<p>Despite these increases, these rates remain significantly lower than those for conventional petrol or diesel cars.<\/p>\n<p><strong>Tax perspective on hybrid company cars<\/strong><\/p>\n<p>Hybrid vehicles, combining an internal combustion engine with an electric motor, offer a middle ground.<\/p>\n<p>Their BIK rates are typically higher than those for pure EVs due to their reliance on fossil fuels.<\/p>\n<p>The rates for hybrids are determined based on their CO2 emissions, with plug-in hybrids (PHEVs) usually enjoying more favourable BIK rates due to their lower emissions.<\/p>\n<p>They could offer you and your employees a nice stepping stone if you are not quite ready to make the jump to fully electric.<\/p>\n<p><strong>Our thoughts on the electric car debate<\/strong><\/p>\n<p>The move towards electric company cars is an environmental statement about your business and a financially astute decision.<\/p>\n<p>As we embrace a greener future, understanding the tax implications mentioned above is crucial for making informed decisions about your company&#8217;s vehicle choices.<\/p>\n<p>Having said all this, it&#8217;s always wise to seek tailored advice from an experienced accountant to navigate the specifics of your situation.<\/p>\n<p>With the right knowledge, opting for an electric company car could be a smart move for both the planet and your pocket.<\/p>\n<p><strong>To find out if electric company cars are right for you, please get in touch with one of our team. <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Environmental consciousness is becoming more and more aligned with business operations, and electric vehicles (EVs) are becoming a popular choice for company cars as a result.<\/p>\n","protected":false},"author":2,"featured_media":5535,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,125,30,44,4,26,7],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/5533"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=5533"}],"version-history":[{"count":1,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/5533\/revisions"}],"predecessor-version":[{"id":5534,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/5533\/revisions\/5534"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/5535"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=5533"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=5533"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=5533"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}