Electric car tax benefits

For businesses, electric cars benefit from first-year allowances (FYAs) of 100%, providing the car is new. This means that 100% of the cost of the car can reduce your taxable profit in the year of the purchase (until March 2025). This is also available to qualifying expenditure on electric vehicle charge-points.

For employees or company directors, the provision of a car for private use, is a benefit in kind (BIK) on which the employee/director and the company pay tax. The BIK for cars is determined by the list price of the vehicle and the level of C02 g/km that it emits. A car with high CO2 emissions attracts a higher percentage rate applied to the list price. The highest rate currently being 37% for cars with CO2 emissions of 170 g/km and above. Fully electric cars have a much lower rate of 2% which will remain in place until 2024/25.

An £80,000 car with CO2 emissions of 170g/km would result in a taxable BIK of £29,600. A fully electric car of the same price however, would generate a much lower BIK of £1,600. As the income tax and Class 1A NIC due is based on the BIK amount, employees/directors and companies will find their tax bills are lower for electric cars than for cars with high CO2 emissions.

Hybrid cars also benefit from a lower BIK where the CO2 emissions are below 50g/km and the higher the electric mileage range, the lower the BIK.

Charging the company’s electric car at or near the place of work using the employer’s electricity is an exempt benefit in kind, even if the car is not being used for business miles.

If the employee has an electric company owned car, there is no benefit in kind when the employer installs a charging point at the employee’s home. The same does not apply where a charging point is installed for an employee-owned car used for business mileage, the BIK is based on the cost of the employer to install in that case.

There are various government grants available surrounding electric cars, including the plug-in grant, which reduces the cost of the purchase of an electric vehicle; the electric vehicle charge point grant for multi-unit properties and the workplace charging scheme for workplace charging units.

For tax saving tips contact us – call Tristan Wilcox-Jones, Samantha Taylor or Lucas Knight on 01225 445507