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Time For A New Company Car? Why Not Make It An Electric Car?

17 February 2021
Jan Friend
Reducing Tax, Accounting & Compliance, Building a Business

If you have been thinking about buying an electric or hybrid car and you run or own a company, then now just might be the time to start your research.

The government is encouraging us all to go green and currently, there is a zero P11D benefit for the drivers of electric cars in the tax year 2020/21 (i.e. from 6th April 2020). From 6th April 2021, this will increase to only 1% of list price for 2021/2 and then 2% for 2022/3.

The Benefits Of Electric Cars

There are several also several other benefits to electric cars over petrol or diesel cars;

  • Electric cars have lower running costs than petrol and diesel vehicles
  • Electric cars are cheaper to maintain than petrol and diesel vehicles due to there being fewer moving parts in electric vehicles
  • Electric cars have obvious benefits to the environment with lower CO2 emissions.
  • The more people that purchase electric cars, the more our health benefits overall with less air pollution
  • Recent findings have shown that certain features in electric cars can improve overall safety. Electric cars have a lower centre of gravity which makes it incredibly difficult to roll in the case of a collision

Why Choose Electric Cars as Company Cars?

More and more businesses are choosing electric cars to replace petrol and diesel cars as company cars. Alongside the benefits mentioned above, company car users that have opted for electric cars will only pay 1% benefit-in-kind (BIK) tax from 6th April 2021 which means for a driver of a standard Tesla Model S Performance AWD Auto with a list price of £89,925 a tax bill of just £360 for a higher rate taxpayer!

But the advantages are not just in the director or employee’s favour. Vehicles with no CO2 emissions (like an electric car) are currently eligible for the 100% First Year Allowance and are exempt from Vehicle Excise Duty. For example, if your company bought a new Tesla Model S costing £89,925 either outright or on hire purchase the whole cost could be offset against your company’s profits for corporation tax. Business owners are beginning to realise that although an electric car may be more expensive upon purchase, it doesn’t always mean that they will be more costly in the long run.

Hybrid Cars — Company Cars Tax Relief

The zero taxable benefits will also potentially apply to hybrid cars emitting no more than 50 grams of CO2 per kilometre with a range using its electric motor of at least 130 miles for 2020/21. At the time of writing this blog, there appear to be no qualifying vehicles in the top band but we expect this to change over the coming months as more manufacturers produce hybrid cars with longer battery ranges. There are, however, some lovely hybrids with relatively low benefits in kind. For example, the Mercedes-Benz GLE Coupé New GLE 350 de AMG Line Premium Plus 4MATIC 9G-TRONIC (5 seats) has a list price of £67,490 and because of its battery range of 66 miles and emissions of just 23 g/km, the benefit in kind is just 7% for the tax year 2021/22 or £1,890 for a higher rate taxpayer.

Rather confusingly there are two different sets of scale charges from 2020/21, one set relating to those hybrids registered before 6 April 2020 and a new lower set of rates for those registered on or after 6 April 2020.

Please note however the rules in respect of claiming 100% first-year capital allowances on the cost of your hybrid car change from 6th April 2021. Up to 5th April 2021 provided it is new and unused and the emissions are less than 50gm/km you can claim 100% first-year allowances. However from 6th April 2021 only 100% electric cars qualify. That means from 6th April 2021 the cost of a hybrid car will be entitled to 18% capital allowances as part of the main pool if emissions are below 50g/km. If the emissions exceed 50g/km the vehicle will be added to the special pool with allowances of just 6% per annum.

Now is the time to take a fresh look at electric cars and don’t discount hybrids!

For more information on what cars qualify for the generous tax reliefs see our previous blog ‘100% Tax Relief on Tesla Model X Continues’.

If you’d like more advice about electric cars, contact me on 01634 731390 or at Jan@friendandgrant.co.uk.

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