[Updated Jan 2021]
We’ve asked Paul Savage – an AIMS Accountant with over 35 years of experience – to explain some of the savings to be made by switching to an electric car for your company.
For many years now the taxation of company cars has been based on carbon emissions. The cost of running a vehicle powered by fossil fuels has increased to such an extent that it is difficult to recommend them as anything other than a vanity item.
Electric Cars Are Changing The Landscape
From 6th April 2020, the benefit in kind rate on a fully electric vehicle or a hybrid with a defined electric range in miles is 0%.
Let me emphasise that – it was 16% up to 5th April 2020 and it is now zero. On a £40,000 car, the saving in national insurance for the company is £845. A higher rate taxpayer saves £2,400 in tax.
The rate will rise later this year in the 2021/22 period to 1% and 2% in 2022/23 but that is still a considerable saving.
Tax Allowances for An Electric Car
Your company would be entitled to a 100% tax allowance, so long as the vehicle is a new registration (but there may be a clawback of some of this allowance when the car is replaced). The same is true for sole traders and partnerships, although the tax allowance claimed will be impacted by their personal use percentage.
These are significant changes in the tax planning regime that have now been in place since 6th April 2020. This means that the provision of an electric company car could become a useful planning tool for businesses once more.
Take Advantage Of Your Energy Opportunities
With the advancement of electric cars, the possibilities for benefitting your company keep growing too; investing in renewable electricity such as a solar panel system means that the energy costs of running your business will decrease. Also, you could your own energy output.
Installing PV technology gives you more control over the carbon footprint of your business. We even have smart meters that you can use to keep daily track of your business’s CO2 emissions.