With the petrol crisis continuing and mounting pressure for us all to be greener, more and more business owners are looking at purchasing an electric car for their business. And with the government offering various incentives and evidence suggesting electric cars are 49% cheaper to run than their petrol or diesel equivalents, it might just be a savvy option.
We take a look at the tax benefits and other things you need to consider if you decide to buy an electric car for your business.
What are the tax benefits of buying an electric car?
Did you know half of all cars on the UK roads are registered to businesses? So, it’s hardly surprising the government has offered a number of incentives to encourage companies to think about buying electric vehicles.
- Benefit in Kind Tax: During the 2020/2021 tax year, the Benefit in Kind tax was set at 0%. This increased to 1% for the 2021/22 tax year and then will increase again to 2% for 2022/23. The rates haven’t been confirmed after that, but currently it represents significant savings compared to buying a petrol or diesel car.
- Fuel Benefit Charge: As electricity is not classed as a road fuel, there is no fuel benefit charge. This means employees won’t need to pay Benefit in Kind on electricity provided by a company to charge an electric company car. However, if cars are plug-in hybrids then then the fuel benefit charge will apply.
- Congestion Charge: Electric cars are exempt from the congestion charge tax for driving in London. At £15 a day that can soon mount up if you frequently go into London.
- Road Tax: Pure electric vehicles are exempt from road tax. Plug-in hybrids pay a reduced rate, and if they cost over £40,000, an additional annual supplement.
Capital allowances on electric cars
Capital allowances are like a tax-deductible expense, which means you can write off the cost of an asset over a period of time.
You can claim capital allowances on any car you buy and use in your business. The rate you can claim depends on CO2 emissions and the date you purchased the car.
An electric car qualifies for the first year allowance, which means you can deduct the full cost from your profits before tax.
If you don’t claim any first year allowances you’re entitled to, you can then claim part of the cost in the next accounting period.
If you would like further information on this or find out if it applies to you, please get in touch.
Electric cars and VAT liability
For VAT purposes, electric cars are treated exactly the same as diesel, petrol or hybrid cars. This means if you use the car solely for business purposes, you can reclaim the VAT, but if it’s also made available for private use, then VAT is not recoverable on your purchase. And bear in mind private use includes travelling between home and work.
If you are buying an electric car solely for your business, then we advise you keep records as HMRC state that you must be able to show proof that the car is for business purposes only.
Another reason to keep detailed and accurate records is so you can claim back VAT on charging. VAT is charged at 20% at all charging points in public places and this includes any charging points at staff car parks. This means you can claim back the VAT for charging a vehicle, but only for the electricity used for business purposes. This only applies to employees charging their car at work or in a public place. If they charge it at home, even if it’s for business travel, then you can’t reclaim the VAT.
You will also be about to reclaim VAT on:
- All business-related running and maintenance costs.
- Any accessories you’ve fitted for business use, such as a sat nav.
Get in touch
Buying any car for your business is a big investment and needs careful consideration. If you need any professional advice and guidance, please get in touch.
