Blog > Finance & Strategy > How electric company cars can save you and your employees a significant amount of money
Electric company cars
20 March 2023

How electric company cars can save you and your employees a significant amount of money

It’s no secret that significant benefits, grants and reliefs are available to businesses and individuals when taking advantage of sustainable and renewable choices. In this article, we’re looking at a quiet revolution in company cars, which have historically been a burden for individuals due to ‘benefit in kind’ (BiK) rules and personal tax liability.

However, things look more positive when we throw electric vehicles into the mix. This is because more favourable BiK rates – as low as 1% – exist for electric vehicles.

Company cars – the old way

Businesses are required to consider the car’s list price when new (including VAT) as well as its CO2 emissions. This sets the car’s ‘P11D’ value and requires the company to declare the benefit via a P11D form to HMRC annually. The amount of tax an employee will pay is calculated by multiplying the P11D value by the employee’s income tax bracket.

Worth noting also that people often get caught out here as they calculate their tax based on the value of the car at the time, which can make a big, big difference to your bill. Remember that if you buy a car for £30k that was priced at £100k when new, the benefit will still be considered to be £100k.

Electric vehicles as company cars – the new way

Well, there isn’t really a ‘new way’ at all. The formula remains the same, but the magic number is the super-low CO2 emissions of an electric vehicle.

For example, a £90k EV would make an employee liable for just £60 a month in BiK tax. A similarly valued petrol vehicle would cost a staggering £1,100 a month. That’s a difference of 35% between the two BiK bands.

Additional savings

The benefits and reliefs don’t stop there. If your company purchases rather than leases, you’ll qualify for the annual investment allowance (AIA) when acquiring commercial vehicles. There is a cap of £200k and it’s important to understand exactly what qualifies as a commercial vehicle. If you’re unsure, this is something that we can advise you on.

There is yet another benefit in a 100% first-year allowance (FYA) so long as CO2 emissions do not exceed 0g/km and the car is purchased new. You can see this as tax relief, and a simple example is £7k saved on the purchase of a £35k vehicle.

Additional additional savings

More? Yes, there’s even more. Remember, electric vehicles are significantly cheaper to tax than petrol and diesel vehicles, and are exempt from ULEZ exclusions and congestion charges – a huge benefit to companies operating commercial vehicles in the city.

Power to the people

So it’s clear to see that the previously muddy waters of personal tax and company cars are now clearing up in a bid to achieve net zero and decarbonisation efforts throughout the UK.

This is a positive step forward for sustainability and renewables in the UK, and also offers businesses and employees an opportunity to benefit significantly from a zero-emission company vehicle.

If you have any questions about BiK, AIA or FYA, then please do get in touch. We’d be happy to advise you.

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