While electric vehicles (EVs) still only equate to a small percentage of vehicles on the roads in the UK, with plug-in EVs making up around 23% in 2023, going electric is a trend that is on the rise.
When deciding whether to choose an electric car for your next company vehicle, there are lots of factors to take into consideration to establish the most tax efficient way to source your EV.
We’re often asked for advice by clients when they’re investigating electric car purchases for their own use or that of their staff. Whilst the best option for your business can depend on the specific vehicle you choose, there are some key points you should consider.
So, what are your options?
As explained in our previous ‘Electric Car Salary Sacrifice – Is it worth going electric?...’ blog article, a salary sacrifice scheme is an arrangement that can be offered to employees whereby their cash payment entitlement is reduced, usually in return for a non-cash benefit or benefit in kind (BIK), such as a company car. The sacrificed portion of the salary isn't subject to Income Tax and National Insurance Contributions (NICs), which could therefore result in tax savings.
For an employee this option could be very appealing as based on a 40% taxpayer, changing from a petrol company car to an electric car, the saving could equate to well over £100 /month, plus additional fuel savings. This scheme can also be beneficial to employers, helping to reduce their Class 1A NI contributions and their business mileage reimbursement costs.
For business owners who take a small wage, and make up their income through dividend payments, this is unlikely to be the most tax efficient solution.
Benefit in Kind (BIK)
When you lease a car through your company, it's considered a benefit in kind (BIK) because it's a non-cash benefit.
The tax on a BIK is calculated based on the car's list price (P11D value) and its CO2 emissions. Fortunately, electric vehicles have significantly lower BIK tax rates than petrol/diesel cars. For the current tax year, the BIK rate for electric vehicles is very low, which usually makes leasing a vehicle through the business tax efficient.
In addition, the lease payments can generally be deducted as an expense, reducing corporation tax liability. However, the amount deductible may be restricted if the car's CO2 emissions exceed a certain level.
Another benefit of leasing is that vehicle costs are kept off your balance sheet, freeing up important credit for elsewhere. You can also claim back 100% of the VAT on payments if the vehicle is used solely for business purposes, this reduces to 50% if used for private journeys too.
When it comes to leased cars, which have all the associated costs covered by the company, you wouldn’t be able to claim business mileage, but you could be reimbursed for the electricity costs associated with charging the vehicle for business travel.
As with many business decisions, understanding what is best for you and your business can be complex. Our advice is always to ‘ask the experts’ – that’s what we’re here for. So, contact the Ellacott Morris team today and let’s establish the best way to go electric, for you.