Buying Electric Company Cars – Current Tax Reliefs
Replacing your company vehicle with an electric vehicle offers several tax benefits that can not only reduce your costs but also help protect the environment. Right now could actually be a favourable time for your company to invest in an electric car or van as there are significant tax reliefs available.
Electric car financial benefits
An electric car qualifies for a 100% first year allowance (FYA) if purchased new prior to April 2025, meaning the cost of the new car is fully deductible in the period of purchase for tax purposes. There’s also a government grant of £2.5k you can deduct from the price of an electric car costing less than £35k. This covers around half of all electric models on the market.
Your company can claim a 100% first year allowance for the cost of buying and installing an electric vehicle charging point at your company premises and a company driver can also choose to apply for a government grant to fit an electric charge point at home. For limited companies, electric vehicles may qualify for tax relief at 130% if purchased new before 1 April 2023 under the super-deduction rules.
Electric car fuel rates
Company car drivers will be taxed on use of the car for personal journeys (1% of the vehicle’s list price 2021/22). This rises to 2% in 2022 and then stays frozen until April 2025. The company car can earn the driver 4 pence per mile for business trips where the driver paid for the electricity to charge it, 3.3 pence per mile when charging from home. Where the company pays for the electric to charge the vehicle, there’s no ‘benefit in kind’ tax for the driver on fuel use for private journeys.
Commercial vehicles like vans qualify for the Annual Investment Allowance (AIA), whatever the C02 emissions. This equates to a 100% deduction on purchases (up to £1m a year) before 31 December 2021. From January 2022, the AIA cap reduces to £200k yearly with transition rules. AIA is available to unincorporated businesses as well as companies. Drivers of electric vans have no tax charged on them for use of the vehicle for personal journeys.
Let’s Talk
There’s a lot to think about when considering your next business car (or van) purchase, so to avoid large tax bills through not thoroughly researching your position, speak to our team of tax specialists about the most tax efficient vehicle for your business, let’s Talk.
Resources
Claim capital allowances: Business cars – GOV.UK
Car fuel and CO2 emissions data – GOV.UK (www.gov.uk)
How to work out the benefit of a company car (480: Chapter 12) – GOV.UK (www.gov.uk)
