Should I get an electric car?

17 Aug 2022

By Andrew Hague, Partner

One of the most asked questions being raised at the moment is should I get an electric car through my limited company. In recent years it’s become clear having a conventionally powered company car as part of your company remuneration is not always a good idea – both from a tax perspective and from a sustainability angle.

The good news is that electric vehicles (EVs) are now more readily available. And choosing an EV as a company car may well be a great idea from both an environmental and tax perspective.

A greener choice of car?

Having an EV as your company is an eco-friendlier choice in many ways. An EV has zero emissions, produces less noise pollution and can be cheaper to run.

There are arguments over the green credentials of EVs, as lithium batteries will eventually need replacing and electrical power to charge the batteries currently still relies heavily on carbon-based power stations. But as technology, battery recycling and the use of renewable energy increases, having an EV as a company car will certainly help you do your bit for lowering carbon emissions.

Taxing a company car

When you tax a company car, there are two tax areas to consider:

  • The tax deduction for the company when acquiring the vehicle

  • The personal tax benefit in kind (BIK) value on which the driver is taxed.

Both are tipped in your favour when comparing the rules for EVs compared with conventionally powered cars.

Tax allowances for EVs

For the company, 100% first-year allowances can be claimed on the purchase of an EV, if it’s new and unused. Any charging point you install at the business for your EV will also qualify for the super-deduction of 130% of the cost, which is certainly a good incentive.

Compare this to the company buying a conventional fuelled car. No first-year allowances are available but annual writing down allowances of 6% (18% if emissions < 50g/km) can be claimed instead.

As the driver of the vehicle, your benefit in kind (BIK) is calculated at 2% of the vehicle’s list price for the current tax year. BIK rates for conventionally powered cars are far higher, ranging up to 37%, depending on emissions. In the most common band, the BIK is around 28%. If your fuel is provided, as an EV driver, you pay no additional tax, whereas there is an additional tax charge if fuel is provided in a conventionally powered company car.

Is now the time to switch to an EV?

If you’ve previously dismissed the idea of a company car because of the complex and expensive tax regime, now may be the time for a rethink.

Talk to us about the tax implications of an EV

If you’re thinking about getting an EV as a company car, come and talk to us. We’ll help you calculate the tax impact for both the company and driver, and can explain the relevant capital allowances that can be claimed when purchasing an EV for the company.

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