Electric cars – Updated 20.05.24
Please contact your account manager to discuss if an electric vehicle is tax efficient for you before you proceed.
Financing options
Please see our article here for the different options on buying a vehicle.
Low Benefit in Kind Rates
To encourage uptake of environmentally friendly cars, the Class 1A NI contributions on an electric company car are 2% of the brand new list price (even if you bought it second hand) and fixed until 2024/25. This will rise to 3% from April 2025 and increase by 1% in future years. Comparatively, traditional petrol and diesel vehicles have a tax rate of up to 37% based on their emissions..
Hybrid vehicles from other manufacturers tend to vary in tax implications. The government is increasingly taxing these as they encourage people to switch to fully electric options.
It is essential to ensure that the invoice is in the company name if you want the company to buy/lease the car.
From a corporate tax perspective
Buying a brand-new electric car is fully allowable against profits.
If you buy it second hand, then corporation tax relief is given at 18% per year. So a £20,000 second hand electric car would give capital allowances of £20,000*18% = £3,600 which, at the highest rate of corporation tax of 25%, would be worth a reduction of £900 in corporation tax.
Charging
The electricity to recharge is also fully tax-deductible since electricity is not classified as fuel if you charge it outside your home. There is also no benefit in kind on any personal miles for this electricity like there is with fuel. However, if you charge it at home, you can only claim for business miles. HMRC allows 7p per mile for business use.
From a VAT perspective
VAT is ordinarily not recoverable on cars. However, 100% of Vat may be recovered on repairs or other costs only if you are on the standard vat scheme. This is unavailable if you use the flat rate scheme.
For some leased vehicles, 50% of the VAT may be reclaimed on rent premiums. So if your contract was £1,000+vat (= £1,200) a month, then the difference would be £200*50% = £100 vat saving a month. Typically the leases where you would be able to reclaim the VAT are operating leases and you would hand the car back after the lease period had expired. If you are planning to reclaim VAT you should discuss any draft financial agreement with your accountant before signing.
Benefit in kind
Class 1A NIC is charged to the company on the benefit to you of the vehicle. This is calculated as gross list price + options x 2% (rising in future years) x 13.8% and charged daily. This is reported on a form P11d which runs in line with the HMRC tax year to 5 April. So the next reporting period is 5 April 2024, and the P11d must be completed by 6 July 2024. The Class 1A tax must be paid to HMRC by 19 July 2024.
So if we assume a brand new VAT inclusive list price of £55k taken out on 6 April 2024, you would have a full year of use: 365/365 * £55k * 2% = benefit of £1,100 x 13.8% employers NIC = £165.55 Class 1A payable by the company.
From a personal tax perspective
The benefit would also be included on your tax return and taxed at your marginal rate. If you are a higher rate taxpayer, then using our example above, it would be £1,100*40% = £440
In short, the benefit in kind charge is currently minimal for pure electric cars, and the tax savings for a company are substantial.
Company cars provided to employees must give notice to HMRC. For further guidance on this, please see this link.