Company cars – the future is electric!

Recent tax changes means now is a good time to review your Company Car policy due to new tax exemptions on electric and low emission hybrid vehicles.

From 6 April 2020, HMRC introduced significant reductions in company car tax charges for electric and hybrid vehicles – also known as Ultra Low Emission Vehicles (ULEVs).

The benefit in kind charge (calculated by multiplying the car’s list price by its CO2 % rating – based on CO2 emissions and electric range) for electric vehicles and the most efficient hybrids drops from 16% to 0% for the 2020/21 tax year, increasing to just 1% in 2021/22 and 2% in 2022/23. The table below gives an overview of these changes:

Note: “Electric range” means how far the vehicle can travel solely on a full battery charge.

The tax savings for a higher rate taxpayer driving an electric car can be more than £15,000 over the next three years when compared to driving an equivalent petrol car, and significantly higher when factoring in fuel benefit or comparing to a more powerful diesel car in a higher CO2 % bracket – see later illustrations

The tax breaks don’t stop with the company car benefit charge, with additional tax incentives on offer:

  • 100% Writing Down Allowances for ULEVs purchased new with CO2 emissions below 50g/km (compared to 6% WDA for cars with CO2 emissions above 130g/km)
  • Company Class 1A NIC savings at 13.8% alongside the employee tax saving on the car benefit charge
  • Electricity is not a “road fuel” and so there is no accompanying fuel scale charge if private mileage is funded by the employer
  • Plug-in grants of up to £3,500 are available for electric and more efficient hybrid cars
  • No benefit in kind charge for company-funded installation of charging points at both the workplace and employee’s home
  • ULEV cars are exempt from the Optional Remuneration Arrangements rules, meaning businesses can provide ULEVs to employees via a Salary Exchange arrangement – creating further tax savings.

Changing your company car fleet to electric or hybrid not only brings tax savings, but can be a key part of your company’s commitment to the Green agenda.

Below are some sample savings illustration, comparing ULEVs and their petrol/diesel equivalents at the lower/mid/higher price range, of the potential tax savings over the next three years.

This clear shift in company car taxation policy means that employees and businesses can either pocket the significant savings on offer or, alternatively put those savings towards a higher priced and better equipped car – essentially getting a much improved electric/hybrid car for the same net cost as its petrol/diesel equivalent.

Garbutt + Elliott’s team of Employment Taxes specialists are available to help you review your company car policy and advise you to make the most of the business and personal tax savings available. For more information please contact Richard Whitelock, Head of Private Clients. rwhitelock@garbutt-elliott.co.uk or Adam Wingrove, Private Clients Senior. awingrove@garbutt-elliott.co.uk