When I started out in business the company car was the norm and almost expected part of a remuneration package. However successive Chancellors have continued to increase car benefit charges and reduce the rate of tax relief available to the employer to a point where they have fallen far from favour.
For example, a reasonably standard diesel Ford Mondeo would cost a higher rates taxpayer around £3,500 a year in tax plus about the same again if fuel is also provided. If you add to this the Class 1A cost of around £1,200 and an annual tax deduction to the employer worth only around £300 it’s not hard to see why the company car’s popularity has waned.
The Government is now encouraging drivers to make environmentally friendly choices when it comes to choosing a car which means considering these alternatives is a far more attractive proposition – especially if you are running your own business.
Combine this with the fact that electricity is not considered to be a ‘fuel’, which means that you can enjoy using electricity paid for by your employer for both business and private journeys without triggering a fuel benefit charge (a significant saving compared to if you drive a petrol or diesel car) and the attraction is clear to see.
All zero-emission cars may be eligible for financial incentives that encourage clean energy use in the UK which include:
£3000 plug-in grant – a subsidy of up to £3,000 deducted from the purchase price of eligible new zero-emission vehicles for vehicles with a list price under £50,000.
Exempt from London Congestion Charge – the cost of commuting by car for 3 years could be up to £8,970 when driving into the zone on a daily basis. From October 2021, the C-Charge exemption will be removed from plug-in hybrids and only be available to fully electric vehicles.
Access to clean air zones, including the London Ultra Low Emission Zone without paying the noncompliance fee of £12.50. The cost of paying the ULEZ over 3 years could be up to £13,650.
No Vehicle Excise Duty – 0% Benefit in Kind (BiK) starting April 6th 2020 and 1% for the following tax year – from 6th April 2020, new and existing zero-emission cars will be eligible for a 0 percent BiK rate for the 2020/21 tax year. The BiK rate will rise to 1 percent in 2021/22 and to 2 percent in 2022/23, being held at 2% for 2024/24 & 2024/25.
No car fuel benefit charge – claimable for up to 100% of the cost of qualifying low emission and electric cars. By choosing a zero-emission car, your business can claim a 100%-year one deduction for the cost of the vehicle.
Benefits of zero-emission vehicles for businesses include:
100% First Year Allowance – exempt from paying Benefit in Kind on electricity provided by their employer to charge an electric company car.
Reduced National Insurance contributions – based on the vehicle’s P11D value and relevant BiK rate are applicable as determined by the official carbon emissions and fuel type.
Eligible for salary sacrifice schemes
There remains a significant problem in that there are currently no hybrid models meeting Government set requirements. Fortunately, there are tax breaks for drivers of hybrid models with shorter electric-only ranges, and whilst they are nowhere near as generous, they could still be between 5% and 8% offering significant savings for higher rates taxpayers.
Whitley Stimpson, one of the largest independent accountancy practices in the area with offices in Banbury, Bicester, High Wycombe and Witney, has a fully qualified team of tax specialists who can advise on all the latest company car matters.
If you’d like to discuss the savings and benefits available by using an electric car, please contact Owen Kyffin.