As more and more vehicle manufacturers release all electric products, an increasing number of businesses are choosing to go fully green and acquire a zero-emission vehicle. Approximately 6.5 million households in the UK are planning to purchase an electric car by 2030, which coincidentally is the year in which the UK government will introduce a ban on the sale of petrol and diesel cars.
For many people and businesses electric cars remain too expensive to buy, yet with technology forever increasing, older models becoming cheaper and tax benefits providing a further incentive, the electric car market is on the verge of exploding. Only a few years ago, most electric cars could only withstand a mere 100 miles or so on a full charge of battery, whereas now models are being released which have more than triple that life expectancy.
The Tax Benefits for Buying an Electric Car
What many businesses, and individuals for that matter, do not know is that there are numerous tax benefits for buying an electric car. From April 2020, the UK government announced a zero tax Benefit In Kind (BIK) for company car drivers and fleet operators who go electric. This benefit also includes hybrid vehicles with emissions from 1-50g/km and a pure electric range of over 130 miles. What’s more, the electric car tax on benefit in kind rate will increase to 1% in the 2021/2022 tax year, and then 2% in the 2022/2023 tax year.
As well as this, cars with zero CO2 emissions, or less than 50g/km (which means many hybrid cars are applicable) can qualify for 100% first year capital allowances, allowing businesses to deduct the full cost of the car or vehicle from pre-tax profits.
Road tax is also heavily decreased with electric cars, with vehicle road tax based on C02 emissions. Solely electric cars are exempt from the first year of road tax meaning it’s free to tax them. All cars registered between 1st March 2001 and 31st March 2017 which feature CO2 emissions less than 100 g/km, are not subject to road tax, however if your car is registered after the 1st April 2017 and cost over £40,000 you will need to pay an additional road tax even if it’s an electric vehicle. Electric cars which are applicable will need to pay £325 annually in road tax for the first five years, compared to £475 for petrol and diesel cars registered after April 2017.
Salary sacrifice is also possible if an employer provides an employee with an electric vehicle. The electric car salary sacrifice scheme is an agreement wherein employees of a company are given the option of buying the electric vehicle at a set monthly cost. This monthly payment is calculated using the employee’s gross salary. This means employees will be saving on National Insurance contributions as well as Income Tax.