What Are The Tax Benefits of An Electric Car?
In a recent blog article, one of our clients, Dennis Holness, described how his experience during lockdown helped push him towards buying a new electric car in preference to other options. Amarjeet Singh, Partner, and Accountant at Accounting Services at Chesterton House, describes the tax benefits that have encouraged greater interest in electric vehicles from business owners.
According to SMMT data, sales of electric cars rocketed in 2020, with more than 108,000 new electric cars registered, a total market share of 6.6 percent. One of the reasons for this increase in demand is the tax benefits of electric vehicles, especially for business owners.
For example, if you bought a new petrol BMW 3-series company car (146g/km of CO2) last April, you would have been liable to pay a benefit in kind (BIK) tax of 32%, rising to 34% by 2022/23. By contrast, a top-of-the-range Nissan Leaf E had no benefit in kind charge last year, 1% this financial year, and only 2% from 2022/23.
Over three years this means that the BMW costs over £13,000 more in tax.
If you are a business owner, the benefits don’t stop there. If your earnings are in the £100,000- to-£125,000 bracket, you are effectively paying 60% income tax on part of your earnings, because for every £2 you earn over £100,000, you lose £1 of your tax-free personal allowance.
You might consider, therefore, buying yourself an electric company car instead of taking the income, keeping your income below the £100,000 level.
This helps to preserve your tax-free allowance resulting in very significant tax
savings to you. Not only that, but the total cost of the car can be written off against your profits in the first year, which cuts your corporation tax liability, too.
Lower Running Costs
There are lots of other benefits to running an electric vehicle, of course, and you don’t have to be a business owner to take advantage of them. Running costs can be much lower than for petrol and diesel vehicles, depending on your electricity tariff and the time of day (or night) you charge the batteries. For a driver covering a typical annual mileage of around 7500 miles, savings can be around £400 a year.
There is no road tax on electric vehicles either, saving another £150. And if you live in London, you will enjoy a complete reprieve from the Congestion Charge, which could save you thousands if you are a regular commuter.
Electric vehicles are currently significantly more expensive than petrol models, although the government offers a grant of up to £3000 towards the cost and £350 towards installing the home charger you will need unless you have access to a separate charging point, maybe at your place of work.
It’s still fairly early days in the progress towards all-electric cars, but the market is developing rapidly and technology is moving at a pace, as are the financial and tax benefits. The number of charging points (the limited range of electric cars is one of the big negative points) is increasing all the time, and the government is clearly strongly in favour of accelerating progress further.
At present, the decision of whether to go electric is largely influenced by your views on their impact on the environment, as well as the availability of charging and their suitability for the type of driving that you do. As mentioned earlier, there are clear tax benefits for company car drivers, and if you are in this position our accounting team can give you up-to-date advice on the best options for you on request.
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