The shift to electric vehicles (EVs) is well underway. Many of the world’s largest car manufacturers have already announced plans to phase out combustion engines. Jaguar will sell only electric cars from 2025, Volvo from 2030 and General Motors from 2035. Ford says all vehicles sold in Europe will be electric by 2030, and VW says 70% of its sales will be electric by 2030.
The UK is at the forefront of the global EV revolution. The government has committed to ending the sale of new vehicles using petrol or diesel engines by 2030. And it is investing £1.3 billion over the next four years to transform the national charging infrastructure. In just the last few weeks, Vauxhall announced plans to produce a new EV model at its Ellesmere Port car plant, and Nissan and battery manufacturer Envision announced a £1bn investment in a new all-electric model and ‘gigafactory’ in Sunderland, promising to create 1,650 new jobs and many thousands more in the supply chain.
To help incentivise UK drivers to transition to electric, the government is currently offering attractive tax rates on EVs.
If you’re the owner of a limited company who’s thinking of changing their car and taking positive action on clean air and climate change, now might be the ideal time to look at buying an EV through your business.
There’s no question that having your business invest in an EV you can use for personal and business miles is good for the environment, but it has to make sense from a tax perspective as well.
There are three main areas you’ll need to consider:
1. Personal Tax
If you have private use of any kind of vehicle owned by your business, HMRC considers this to be a ‘benefit in kind’ (BIK), and you’ll have to pay tax. The only way you can avoid paying BIK tax is if you use the vehicle exclusively for business and keep it at your business premises overnight.
On petrol and diesel cars, to calculate how much benefit in kind tax is due, a percentage figure based on the car’s fuel type and CO2 emissions is applied to the vehicle’s original list price. The maximum this figure can be is 37% of the list price – typically, it will be around one-third of the value. So, for each year that an individual has use of a petrol or diesel car costing say £30k new, they’ll have to pay tax on around 10k over and above their salary.
For a fully electric company car, BIK is calculated at just 1% of the original price. This means the driver of a £30k company-owned EV will only have to pay tax on an additional £300 per annum. For someone in the 20% tax band, then, this equates to just £60 for an entire year’s worth of motoring. Not even the cost of a full tank for many petrol and diesel cars!
Not surprisingly, many business owners are realising that running an EV through their company is a highly economical way to have private use of a car – even taking into account that the business will have to pay National Insurance (currently 13.8%) on the value of the BIK.
With effect from April 2022, the government is raising the percentage charge on fully electric cars from 1% to 2% of their list value. Even with this increase, a lower rate taxpayer will only have to pay £120 each year to drive a £30k EV.
If your business is registered for VAT, you’re likely to be interested in reclaiming VAT on the purchase of an EV. For the purposes of VAT, HMRC makes no distinction between an EV and a car powered by any other kind of fuel.
HMRC allows VAT to be reclaimed only on new cars used exclusively for business. The position is slightly different if a vehicle is leased, in which case, even if it is available for personal use, 50% of the VAT on monthly charges can be recovered from HMRC.
3. Business Tax Relief
When you purchase an EV, you can claim tax relief on your asset. Relief will be set against your corporation tax liability.
A new EV purchased after April 2021 will qualify for first-year allowance (even if the purchase is backed by a loan), meaning that you can deduct the full cost from your profits before tax – this is in addition to your annual investment allowance (AIA).
Second hand EVs purchased after this date can be written down against profits at 18% per annum
Electric cars look set to be the future. As advances in battery technology make them ever-more affordable and the charging infrastructure is rolled out in earnest, they offer an increasingly attractive alternative to their petrol and diesel counterparts.
But a car is a significant investment. If you’re thinking of purchasing an EV or any other type of vehicle through your business, it will be important for you to take professional advice from your accountant so that you’re clear on your tax liability – as well as any tax relief you may be entitled to.
If you’d like to own an EV or a low emission car through your business, now might be the ideal time to look into it seriously. Before you make any decisions though, you’ll want to make certain you’ll benefit financially.
To help you understand what your tax position will be – and most likely, how much better off you’ll be – Inca can review your personal and business circumstances against the kind of EV you’re considering buying.