Company directors often ask us whether buying a company car through the business is a good idea. And in view of the current feeling towards petrol and diesel cars, now is a good time to consider the benefits of electric vehicles.
Benefits to the company of an electric company car
The first advantage to a company that buys a new electric vehicle is that it can offset the entire cost against its profits in year one.
So for example, if it bought a brand new electric vehicle for £40,000 it can offset that against its profits and save tax of up to £7,600 in year one.
Compare that to a petrol or diesel car where you can only offset 6% of the cost, which would give rise in year one to a tax saving of about £450.
So we’re comparing £7,600 to £450, a huge difference.
What about the employee’s tax?
Petrol and diesel cars are taxed on their CO2 emissions, and that can mean a benefit in kind of up to 37% of the list price on the individual.
So taken together with a fuel benefit and the employer’s NI on the cost of the car that’s payable by the company, for a vehicle costing £40,000, say, that could equate to almost £13,000 tax and national insurance each and every year, which is a huge amount on a £40,000 car.
Compare that to an electric vehicle where the percentage benefit in kind is currently 1%, rising to 2% from April, 2022.
So for a 40% taxpayer, the tax payable per year would only be about £400 a year.
So we’re comparing £13,000 a year to £400 a year. Another huge difference.
Further benefits of an electric car
Of course, electric vehicles are cheaper to run as well as we’ve seen with rising fuel prices recently.
And as an added sweetener, the government have said that if companies put in place electric charging points at their business premises, when the employee uses them, there’s no benefit in kind.
That doesn’t, however, apply if the company puts the charging point in at the employee’s house.
So as you can see, electric vehicles are extremely tax efficient
Do get in touch if you would like to discuss any aspect of your personal tax or company tax.