The electric car is it right for your business and you?
The electric car is it right for your business and you?
In less than 7 years if you want a new car then as things stand the only choice will be a plug in hybrid or electric one (or if available hydrogen).
This being the case is it a good time to go electric? Well for the business user there are certainly tax advantages for both company and driver.
The Business
For the business, companies can claim 100% first year capital allowances on the cost of purchasing electric cars. This means the full cost of the car can be written off against taxable profits in the year of purchase, resulting in reduction of the companies tax bill.
If you look at leasing the car then you can offset 100% of the rentals against taxable profits. Also for a lease vehicle you pay the rentals based on the pre VAT price of the car. The rentals attract VAT but the business can claim 50% of the VAT back (100% for pool cars).
Because the driver will pay less Benefit in Kind tax this means the company will save on National Insurance contributions.
Electric cars also have fewer moving parts so generally require less servicing reducing maintenance costs.
The hidden non-financial benefit is that you are reducing your CO2 which will enhance a company’s corporate social responsibility profile as it demonstrates a commitment to reducing carbon emissions and promoting sustainable practices which demonstrates a commitment to reducing carbon emissions and promoting sustainable practices.
The Driver
The personal Benefit in Kind tax is based on the CO2 emissions and the P11D value of the car (the list price). For an electric car the CO2 is zero but the tax you pay is currently based on 2.0% of the P11D value. (This will rise to 3.0% in 2025/26 tax year).
For a £35,000 car this would mean a 20% taxpayer paying an additional £140 a year (or £11.67 per month) in tax.
If you were to take a £35,000 petrol hybrid car with CO2 of 100g/km then the additional tax would be 25% of P11D value which is £1750 a year (or £145.83 per month) for a 20% taxpayer.
Inevitably the tax on electric vehicles will go up as the amount of tax revenue the treasury generates from more traditional company cars reduces, but you may have a good few years to take advantage of the current low rate.
Neal Page – Director
Horizon Vehicle Leasing Limited