Company car benefits – go electric if you can

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

Call +44(0)330 024 3200 and discover how we can help you.

The government in November made a bold statement towards combatting climate change announcing that the sale of new petrol and diesel cars will end by 2030.

With business owners making potential savings under the current tax regime of £30,000 over the next four years, it isn’t a question of if you should buy an electric car but when.

Back in the 1980s, company cars were the way to go for most businesses and their owners. The benefit in kind was cheap, capital allowances respectable, and the cost came out of pre-tax company money. Successive governments have, however, seen the company car as a cash cow, raising the tax cost of a car benefit to a level where they were only suitable for commercial travellers.

Forty-years on, technology has opened the door to all-electric cars that actually look, feel and perform at least comparably with their petrol or diesel equivalents. But alongside this is a range of incentives to encourage businesses to choose electric vehicles as a company car.

The first-year allowance on a new electric vehicle, and on other cars with CO2 emissions less than 50g/km, is 100% (though soon this will just be all-electric only). Most petrol and diesel cars get just a 1.14% deduction. The first-year allowance equates to a 19% discount on the price, though some may be clawed back when you sell the car.

The road fund license after the first year is 0% per annum, and for electric vehicles costing up to £40,000 it is also at 0% on purchase. The tax on the director/employee who uses the car privately is also currently zero, and there is no tax on the benefit if the company pays for electricity.

A £350 grant is also available for the installation of a charging point at home, and the benefit in kind if the company pays is zero. The company will get 100% first year allowances on it too.

The cost of maintenance of electric vehicles is usually low, typically needing servicing every two years with fewer moving parts.

Drivers in some cities, London being one example, see enhanced attractions too.

In Westminster, almost all roadside parking requires the driver of electric vehicles to pay only for 10 minutes of parking for up to the full permitted maximum in the bay (usually four hours). The Central London Congestion Charge is discounted by 100% if you register that vehicle at a cost of £10 per annum. Some other cities are now restricting access to their centres only to electric vehicles.

There are, however, things businesses and their owners need to keep in mind that may deter them from choosing fully electric vehicles.

The biggest is that the main tax incentives only apply if you can buy the car through your company, and an electric vehicle costs roughly 25% more than its petrol or diesel equivalent.

Range and ability to charge is also often a deal-breaker for many drivers too, but that is constantly improving, and second-hand pricing for electric vehicles is unknown at present.

Most important, perhaps, is that the incentives are bound to disappear once an EV is the norm, so at a guess, by around 2025, we can expect to see the incentive dwindle. That is the year when the London congestion charge discount vanishes.

Below is a comparison for a higher-grade electric car used purely for personal purposes for 10,000 miles per annum, bought as a company car by the owner of a company, compared with a privately owned petrol vehicle equivalent, owned for four years and sold for 30% of its list price. This example assumes servicing costs of £300 per service, and the income tax or corporation tax that would have to be paid in order to be able to spend the cost of the car or running costs out of net income.

(1) Income tax at 40% (National Insurance not factored in as minimal), corporation tax at 19%

(2) Annually for petrol, biennial for electric

The various incentives for electric vehicles are in operation in 2020/21. Governments notoriously tinker with car benefit in kind charges, and what is the case this year may not be here next year.  The best information is that most of these incentives will be here till 2025.

If you have queries on this please get in touch with Liam Henry on 0330 024 3200 or liam.henry@hhllp.co.uk.

Do you need extra information?
Liam Henry

Liam has developed a specialism in the property and construction industry, particularly in relation to the taxes that have a specific impact in this area, such as CIS and VAT.

Contact Liam at liam.henry@hhllp.co.uk or on 01923 634416