Company Car Tax: Does it now pay to go electric with your fleet?

Posted by
Rouse Partners
23.09.2019

Last week we were kindly invited by Lloyds Bank and DriveElectric to test drive electric cars and hear from pioneering manufacturer Tesla, about the latest developments in electric cars.

But it isn’t just the progression in technology and infrastructure which is driving more companies to consider part or fully electric fleets. There are significant taxable benefits which we discuss further in this article.

Company cars a liability?

When it comes to offering your staff company cars, the common drawback is that often they create more personal tax liability than they save on the company’s corporation tax bill, meaning many employees choose to opt out of having one altogether.

This is because employees taking company cars are liable to pay ‘Benefit in Kind’ (BiK) tax to reflect the monetary value of this perk.

Whilst this varies depending on the vehicle, it can usually be more cost-effective for employees to use their own car and claim back the mileage instead.

This has meant dwindling take-up and companies missing out on the benefits of offering company cars, namely attracting employees, deductible repair and maintenance expenses, capital allowance reliefs and reclaiming VAT if purchasing, branding and reputation reasons.

But this could all be set to change due to tax exemptions on electric and low emission vehicles being introduced from 6th April 2020. In this article we look at the new exemptions and what this will mean for employers in practice.

Pure electric cars will pay no company car tax next year

From 6 April 2020 until 5 April 2021, full battery electric vehicles (BEVs) will pay no Benefit in Kind rate. This compares to 37% at the opposite end of the emissions scale.

This 0% rate also applies to company car drivers in pure electric vehicles registered prior to April 6, 2020. Additionally, the 0% rate will also apply to company cars registered after April 6, 2020, with emissions from 1-50g/km and which have an electric mile range of 130 miles or more. Both will increase to 1% in 2021/22 and 2% in 2022/23.

The table below shows the Benefit in Kind rates for vehicles with less than 50 g/km CO2 emissions before and after 6 April 2020 including Electric, Petrol and RDE2 Diesel.

Vehicle CO2 emissions BiK rate for cars registered before 6 April 2020 BiK rate for cars registered after 6 April 2020
2019-20 2020-21 2021-22 2022-23 2019-20 2020-21 2021-22 2022-23
0 g/km 16% 0% 1% 2% n/a 0% 1% 2%
1-50 g/km (electric range >130 miles) 16% 2% 2% 2% n/a 0% 1% 2%
1-50 g/km (electric range 70-129 miles) 16% 5% 5% 5% n/a 3% 4% 5%
1-50 g/km (electric range 40-69 miles) 16% 8% 8% 8% n/a 6% 7% 8%
1-50 g/km (electric range 30-39 miles) 16% 12% 12% 12% n/a 10% 11% 12%
1-50 g/km (electric range <30 miles) 16% 14% 14% 14% n/a 12% 13% 14%

Benefits in Kind Comparison: Electric vs Petrol

We thought that it would be useful to show an example of how the above rates work in practice. The below example is based on a higher rate taxpayer buying an electric Tesla Model 3 versus a petrol Mercedes S 450 after April 2020.

Vehicle Tesla Model S Performance Mercedes S 450 L AMG Line
P11D Value (approximate list price at the time of writing (23/09/2019) with no separate delivery fee £90,000 £90,000
Emissions 0 gCO2 /km 169 gCO2 /km
2020-21 monthly BiK cost @40% tax rate £0 per month
(@0% BiK rate)
£1,100.00 per month
(@37% BiK rate)
2021-22 monthly BiK cost @40% tax rate £30.00 per month
(@1% BiK rate)
£1,100.00 per month
(@37% BiK rate)
2022-23 monthly BiK cost @40% tax rate £60.00 per month
(@2% BiK rate)
£1,100.00 per month
(@37% BiK rate)

Plus, tax relief on ultra-low emission car purchases

For companies planning to purchase rather than lease their fleet there is also the added benefit of a 100% first-year allowance (FYA) which is currently in place for the 2019/20 tax year.

This effectively gives full tax relief to companies on the cost of the car in the year of its purchase.

This means that a £35,000 investment in an electric vehicle would yield a £7,000 saving in tax relief for your company.

There are also other benefits of ‘going green’ (including reduced road tax, being exempt from the Ultra Low Emission Zone (ULEZ) and congestion charges and a Plug-in Grant of up to £3,500), so it is not hard to see why companies are beginning to look at electric car as a viable option for their fleet.

What about company vans?

Company vans are treated in the same way for tax purposes. Furthermore, there are government grants available including the Plug-in Van Grant worth up to 20% towards the purchase price up to £8,000.

There is further information available on the Plug-in Grant for cars and vans on the .Gov website.

Concerns about going electric

Some of the key concerns of moving to an electric fleet include range, charging and purchase cost.

Whilst these have been improving in recent months, the next 12 months is set to see much more competition in the market which will lead to improvements in all these areas, so it is worth exploring them in more detail with the retailer or leasing company.

Contact us

Our tax team provides a full range of tax planning advisory services for businesses and individuals. We also provide a P11D service to look after your reporting of staff Benefits in Kind.

Please contact us to discuss your requirements and for a quotation.

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This information has been produced by Rouse Partners LLP for general interest. No responsibility for loss occasioned to any person acting or refraining from action as a result of this information is accepted by Rouse Partners LLP. In all cases appropriate advice should be sought before making a decision.

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