Electric vehicle switch offers multiple benefits

10 November 2022

by Kleand Sokoli, Clients Account Supervisor

With the world’s leaders in Egypt for the UN’s climate change summit – COP27 – we look at one way UK businesses could reduce not only their use of fossil fuel but also their tax bill.

Motorists are increasingly choosing to drive electric cars and with the government aiming to cease the sale of petrol and diesel cars by 2030, now could be the perfect time to switch your business to electric vehicles.

Besides the environmental benefit of electric vehicles, there are also tax benefits to businesses using electric vehicles, these have been summarised below:

Businesses can claim 100% capital allowances on the purchase of brand-new electric cars which can be offset against profits. For petrol and diesel-powered cars, the allowance is only 18% or even 6%.
The director/employee using the electric car for personal use will only be taxed at 2% of the vehicle list price rather than 15-37% of the list price as well as a fuel benefit if the employee/director is provided with free fuel.
The example below shows the tax implications of a company providing an electric car to one of its directors/employees versus providing a petrol/diesel powered car with CO2 emissions of 120-124g/km (average of new cars).

Electric Car - £50,000

Business can claim 100% of the £50,000 as a first-year allowance to be deducted from profits.
The company will pay very minimal Class 1A NIC as the benefit in kind is only £1,000.
If the director/employee uses the car for personal use, the benefit in kind will only be 2% of the list price, so £1,000 will be added to their income and is taxed at the tax relevant rate (20%, 40% or 45%)
There is no fuel benefit

Petrol/Diesel Car - £50,000

Business can only claim 6% of the cars value and the vehicle gets written off by 6% a year, rather than getting the full tax benefit upfront when the vehicle is purchased.
The company will pay Class 1A NIC at 15.05% of the car benefit.
The benefit in kind will be 29% of the list price, so £14,500 will be added to their income and is taxed at 20%, 40% or 45%.
There is also a fuel benefit of £23,400 times the above percentage, so £6,786 will be added to their income and is taxed at 20%. 40% or 45%

In addition to the previously mentioned benefits, businesses can claim 100% capital allowances on the cost of installing electric charge points at or near the workplace and there is no benefit in kind to the employee for using the charge point. Adding charging points would be a clear demonstration of a business’s commitment to sustainability as well as serving as a very good tax-free employment perk/benefit.

Electric vans are even more beneficial as there is no benefit in kind for personal use of the van.

This document constitutes neither professional advice nor a binding offer by us to provide professional services . Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence.

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2023