All electric cars have zero emissions and may be eligible for financial incentives that encourage clean energy use in the UK.
Benefits for All electric car Drivers:
• £3000 plug-in grant
• Exempt from London Congestion Charge
• Access to clean air zones, including the London Ultra Low Emission Zone
• Up to £28,000 interest-free loan (Scotland only)
• Vehicle Excise Duty
Benefits of Electric for Business:
• 0% Benefit in Kind (BiK) starting April 6th 2020
• 100% First Year Allowance
• No car fuel benefit charge
• Reduced National Insurance contributions
Plug-In Grant
The plug-in grant is a purchase subsidy of up to £3,000 which is deducted from the purchase price of eligible newest electric vehicles. Vehicles with a list price under £50,000 before application of optional extras are eligible.
More information: Plug-in Grant & Go Ultra Low
London Congestion Charge
The London Congestion Charge is a daily charge for driving a vehicle within the charging zone in central London. As of 22nd June, the charge is now applied between 07:00 and 22:00, 7 days per week. The daily charge has also risen to £15 per day for an indefinite period. Currently, only vehicles that meet Euro 6 standards (petrol and diesel), that emit no more than 75g/km of CO2 and have a minimum 20 miles zero emission capable range will qualify for the 100% cleaner vehicle discount. From 25th October 2021, the cleaner vehicle discount will change so that only battery electric vehicles are eligible.
More information: TFL Discounts and Exemptions
Ultra Low Emission Zones
Electric vehicles are able to access the London Ultra Low Emission Zone, without paying the noncompliance fee of £12.50. The current Central London ULEZ is due to expand significantly from Central London to cover a much larger zone in October 2021. The cost of paying the ULEZ over 3 years could be up to £13,650, when driving into the zone on a daily basis.
More information: Ultra Low Emission Zones
Electric Vehicle Loan in Scotland
In Scotland, Transport Scotland funds an interest-free Electric Vehicle Loan of up to £28,000 for purchases of a new plug-in electric vehicle for personal use and up to £120,000 for purchases of new plug-in electric vehicles for business use.
More information: Electric Vehicle Loan & Low Carbon Transport Business Loan
Company Car Tax (Benefit in Kind)
From 6th April 2020, both new and existing Electric cars will be eligible for a 0 percent BiK rate for the 2020/21 tax year. The BiK rate will rise to 1 percent in 2021/22 and to 2 percent in 2022/23, being held at 2% for 2024/24 & 2024/25. The average petrol or diesel vehicle has a BiK rate of 20 to 37 percent.
More information: Benefit in Kind, Company Car Tax Rules, Review of WLTP and Vehicle Taxes, Budget 2020
100% First Year Allowance (FYA)
First Year Allowance is claimable for up to 100% of the cost of qualifying low emission and electric cars. By choosing an electric car, your business can claim a 100% year one deduction for the cost of the vehicle.
The First Year Allowance is applicable to new vehicles and cars considered new despite previously being used, such as vehicles registered as a sales or service demonstrator by the manufacturer.
In the March 2020 UK Budget, the Government announced that 100% FYA for businesses purchasing low emission cars will be extended until 31 March 2025.
More information: HMRC Capital Allowance Manual
Car Fuel Benefit Charge
As electricity is not classed as a road fuel, Electric cars have no fuel benefit charge. That means employees are exempt from paying Benefit in Kind on electricity provided by their employer to charge an electric company car.
More information: Tax benefits for ultra low emission vehicles
Advisory Fuel Rates
As electricity is not classed as a road fuel, the car fuel benefit charge does not apply to electric charging. If an employee uses a company car, no Benefit in Kind occurs when charging their vehicle at the workplace.
The advisory fuel rate for fully electric vehicles has been confirmed by HMRC as 4 pence per mile.
More information: AFR/AMAPs/MAR and Fuel Benefit
Class 1A National Insurance Contributions
Class 1A NICs based on the vehicle’s P11D value and relevant BiK rate are applicable as determined by the official carbon emissions and fuel type.
More information: An employer’s guide to Class 1A National Insurance contributions
Vehicle Excise Duty
With zero emissions, all Electric Vehicles cars are exempt from Vehicle Excise Duty. This includes an exemption from the luxury car surcharge from 1 April 2020 until 31 March 2025.
PURCHASING AN ELECTRIC CAR THROUGH A LIMITED COMPANY
Please find below a link to Tesla’s website which outlines advantages and tax benefits of purchasing an electric vehicle
In addition, HM Revenue and Customs has no special VAT breaks for electric cars. The company would therefore be unable to reclaim the VAT relating to the vehicle’s purchase.
LEASING AN ELECTRIC CAR THROUGH A LIMITED COMPANY
As a business owner, leasing an electric vehicle through your limited company can be a very tax efficient way of getting that new car.
Lease payments can generally be fully offset against your Corporation Tax bill and, if your company is VAT registered, half the VAT reclaimed too. Leasing works out more favourably than buying a vehicle outright through your Limited Company as, when buying, none of VAT can be reclaimed.
The biggest tax burden has, historically, been Benefit in Kind (BIK) tax, an income tax charge based on the value of the benefit you receive from your company.
This is calculated by multiplying the list price of the vehicle by a percentage BIK based on the CO2 emissions of that vehicle. The more environmentally friendly the vehicle, the lower the percentage.
Depending on whether you’re a basic, higher or additional rate taxpayer, you would then have an income tax charge of 20%, 40% or 45% of the value of that benefit. You would also pay Employers’ Class 1A National Insurance (NICs) on the value of the benefit too.
However, from April 2020, the Government have announced in the Draft Finance Bill that the BIK charge on fully-electric cars will be reduced significantly.
- 0% BIK on all fully-electric vehicles in the tax year 2020-2021.
- Increases to just 1% in 2021-2022 and 2% in 2022-2023.
- BIK rates as low a 0% for least polluting hybrid cars with a zero-emission range of at least 130 miles.
With the BIK percentage currently at 16% for the 2019/2020 tax year for vehicles with 0 g/km CO2 emissions, that represents a huge saving for limited company directors.
Please let us know if you require more details.