On the face of it, owning an electric vehicle can look like a costly proposition, but with a little bit of planning, costs can be reduced to such an extent that it becomes quite compelling.
As ‘EVs’ become ever more accessible, the Government are encouraging the switch by making it rather attractive from a tax position – particularly so if you work for a company that is prepared to help you navigate to the most tax efficient solution.
Company cars are taxed through a benefit in kind rate (BIK). In 2019 the Government announced a 0% BIK rate for EVs, effective for the 20/21 tax year, rising to 1% in 21/22 and 2% in 22/23. This sounds low, but it’s only when you compare it against a petrol or diesel sibling that you realise how much of a difference this can make. A diesel or petrol engine car can have a BIK rate as high as 37%, with 25% seemingly around the average for a ‘normal’ family saloon. What does this mean? On a £30,000 list price for a new car, the taxable benefit on the EV would work out at £600 (in 2022/23) versus a 25% BIK rate which would have a taxable benefit of £7,500 per annum. Quite a difference!
The BIK rate only tells you half the story. If you’re fortunate to work for a company that is prepared to assist you, or, if you have your own company, there are many ways to reduce the cost of ownership of your EV.
Owning or leasing a car through the business can further reduce the tax burden. There are opportunities to reduce personal tax, and National Insurance through salary sacrifice. The business can reclaim VAT and qualify for relief against company profits through capital allowances, with any finance costs also deductible against company profits.
If you’re a Director of the business, there are options in how you’re paid, and the BIK can fall within your tax-free personal allowances. There are also opportunities to expense some of the initial and day to day costs such as home charging points, insurance, and servicing and repairs through the company. If you’re a shareholder and take your remuneration via dividends, the tax savings are even more attractive.
In short there are many considerations which can make for a cost-effective ownership proposition. If you’re thinking of making the change and would like to discuss the options available to you, we would be delighted to help.
This is an abridged version of the Elsby article featured in the Business Times Tax incentives spark renewed interest in electric vehicle switch – Business Times (business-times.co.uk)