The world has been on the road to cleaner energy for a long time now. Switching to an electric car won’t solve the world’s climate crisis, but it will have a positive impact in the UK where driving makes up a huge share of the UK’s carbon footprint. Not to mention, a positive impact on your finances.
Have you caught David Attenborough’s witness statement to the world yet? In it, the 93 year old broadcaster provides his vision for the future, and part of that vision is a fossil-fuel free future. A world without fossil fuels means a world without diesel – one of the major reasons to invest in an electric vehicle for your company car.
But alongside the environmental incentive, the UK government has introduced serious financial incentives to business owners thinking about making the switch.
Tax benefits for the driver and the company
From April 2020, if you choose an electric car as your company car, the driver will pay zero benefit in kind tax during 2020 and 2021. During 2021/22, it’ll be a 1% BIK tax and 2% for the tax year 2022/23. Though it won’t stay at zero forever, the low tax incentive in the years to come is still really great.
It’s not just the driver who benefits from this incentive. Your company itself can benefit too, because you can claim ‘enhanced capital allowances’ on your tax return, on the following:
- some cars with low CO2 emissions
- energy saving equipment that’s on the energy technology product list, for example certain motors
- water saving equipment that’s on the water efficient technologies product list, for example meters, efficient toilets and taps
- plant and machinery for gas refuelling stations, for example storage tanks, pumps
- gas, biogas and hydrogen refuelling equipment
- new zero-emission goods vehicles
Electric cars work by plugging into a charge point and using energy from the grid. You can do this either from a charging point at home, or from a public charging point. You can use the Zap Map to find out where your local charging point is.
You can charge your electric car at the office, and there’ll be no benefit in kind on the use of the electric.
If you lease the vehicle you can claim 50% back on the VAT on the lease payment
Whenever you get a company car you have the option either buy the car outright or lease it. We’ve weighed up the two options to see which is best when going electric and there are a few factors to consider:
- If the car is bought brand new, you can benefit from the enhanced capital allowances mentioned previously, meaning you can deduct the cost from your profits.
- If the car is leased and you’re registered for VAT, you can reclaim 50% of the VAT on the lease payments. When you buy the car you can only claim VAT back if you’re not buying it for personal use (you’re in the car industry for example). You can also reclaim corporation tax or personal tax on the full amount you paid for the lease in the year, subject to VAT.
It may appear to be more advantageous to lease the car, especially if you want to spread out the payments to go easier on your cash flow. But it all depends on your circumstances. Either way, choosing an electric car as your next company car is a smart move – for the planet it seems, and also for your bank account.
If you’d like us to look into your circumstances and work out how much tax you could save by going electric, give us a shout. If you end up buying (or leasing) a swanky electric car as a result of this blog – feel free to give us a shout too, humble brags welcome.