With expansion of the ULEZ zone this year, there are increasing reasons to consider electric and low emissions cars, particularly for companies where the tax benefits are now significant, as the Government has increased incentives in an effort to hit emissions targets.

Compared to petrol/diesel vehicles, electric cars carry significant benefits; 

• The personal taxable benefit on an electric car is much lower.
• A zero/low emissions car will also be eligible for 100% first year capital allowances when purchased new, resulting in a reduction in corporation tax. As Corporation Tax is now at the higher rate of 25% for most small companies this is an added incentive. Petrol and diesel cars in comparison only qualify for capital allowances at 6% or 18% https://www.gov.uk/capital-allowances/business-cars      
• Corporation tax can also be reduced through leasing an electric vehicle, as the cost of this will lower profits
• Electric cars are exempt from ULEZ/congestion charges

Personal Taxable Benefit – for tax years 2023/24 & 2024/25

Car tax benefits are calculated on the list price of the vehicle when new multiplied by a percentage which depends on the type of car and its emissions. Full details are as below which includes a calculator which can be used to check the benefit in kind;

https://www.gov.uk/tax-company-benefits/tax-on-company-cars         

Zero Emissions – For electric cars - The taxable benefit would be only 2% of the list price of the car – making it a very cost effective company benefit. The 2% rate rises by 1% each year until 2028.

Low Emissions (emissions ranging from 1-50g/km) – The taxable benefit on the list price of the car would be between 2% and 14%, depending on the electric mileage range of the car.

Other Diesel and Petrol Cars -the percentage rates which apply to other cars ranges from 15% to 37% which can make the personal tax cost extremely high.

As a general rule it has not been worth having Companies own non electric/low emissions cars for some years but with the incentives which exist, lower personal tax bills and savings against the higher corporation tax rates the equation has changed.

Of course, choices of vehicles are about many factors and not just tax. The fall in value of a vehicle over its lifetime and running costs are very important. Availability of charging points, range of vehicles etc need to be considered too. But as greater range of vehicles available and the technologies are not so new, the falls in values of electric and hybrids may be less. ULEZ has undoubtedly impacted on the second hand value of other vehicles too.

VAT – lease or buy?

If you purchased the car outright through the company, you would not be able to reclaim any of the VAT as it is not a commercial vehicle.  However, if you leased the car then you would be able to reclaim up to 50% of the VAT on the lease costs. So leasing may be an attractive option and in the case of an electric car, where the second hand value may be more uncertain, leasing may offer an attractive alternative to buying.

Company Van?

Owning a van for in a company is another option to consider. The rules for vans work on a different scale which are much lower than for cars, and not related to the value when new as it is for cars.

There is a tax charge on the private use of an employer's van. The tax cost is calculated as the employee's rate of tax multiplied by the benefit for the year in question. The van benefit for 2023/24 is only £3,960 so for a high value van with greater emissions, the amount of the personal tax charge would be much lower than a car of the same value.

VAT is also claimable on a company van (as long as used for business purposes), but not on a car (other than 50% on lease as above).

Fuel Taxable Benefits

A personal tax charge also arises where fuel is provided to employees and also charging points on electric cars. Those tax charges are relatively low in comparison to the vehicles themselves. The charges can also be found using HMRCs calculator at the link below.

http://cccfcalculator.hmrc.gov.uk/CCF0.aspx       

If you have any questions please contact us and we would be happy to discuss further.