Tax Incentives for Electric Cars and for Vans

For a small business the company purchase of a fuel driven car has long been a no-no but there is now an incentive for companies to provide an electric car. Unless the Co2 emmissions are low the director or employer who is provided with a company car will potentially pay tax on benefits that exceed the purchase price of the car. Instead of the business providing such a a car there will usually be far less tax to pay if the owner draws an additional dividend and buys the car personally.

A director or emplyeee will pay tax on the benefit of a car which is provided by their company. The benefit is calculated as a % of the manufacturers list price for that car and model. Again, the benefit in kind (“BIK”) rate can be very attractive for a wholly electric car – the scales are as follows;

The table goes up to 37% pa for a car of 160 Co2 emissions or more. In just 3 years you would have paid tax on more than the total purchase price of the car so that is clearly not worthwhile, but if the Co2 emissions are less than 100 it is not so bad and, on zero Co2 emissions with reasonable mileage you only pay tax on 2% of the cost. These rates should remain with us until 5th April 2025 but after that we may well see even harsher disincentives for all non- electric cars.

If the Co2 emissions are 0 (basically the car is wholly electric), the company can claim full tax allowances in the year of purchase. If the emissions are more than 0 but are 50g/km or less the company claims 18% pa of the written down value / above 50 Co2 the company claims 6% pa. So with only 51 Co2 emissions or more the allowances for a company to buy are already very little – there may be a balancing allowance when the car is eventually sold but the calculation of this depends upon what other assets the company has bought and are included in a pool of assets qualifying for either the 18% or 6% rate of allowances.

Another idea to think of is company contract hire of a car. So some manufacturers have fairly good 2 year contracts for a car of less than 100 Co2 emissions. All maintenance is paid for under contract hire and if your taxable benefit is in that 24% band or less it is an attractive way of getting a new car every 2 years.  

Fuel Costs

Do however note that the company should not pay for any petrol if the company are providing you with a car. When a company does both provide a car and pay for fuel, there is a very high fuel scale added to the taxable income of the director or employee. The fuel benefit is a fixed annual charge which applies even if only one drop of fuel was to be paid for by the business. A better way of recompensing directors and employees for the cost of fuel would be that the business will pay a fuel mileage allowance for use of the car on business journeys, and the recipient pays for their own fuel bills personally.

Vans

One idea that suits several of our traders is that most vehicles of more than 1 tonne laden weight are taxed as vans. Vans qualify for full allowance as a deduction from profits in the year purchased, and for recovery of the vat included in the purchase price, and the taxable benefits are considerably less than those for car benefits; so from solely taxation perspectives there are three good reasons to prefer such a vehicle of more than 1 tonne laden weight. Such a heavy vehicle may not suit everyone but, for example, certain Land Rover Discovery models are “vans” and this is one reason that you will see quite a few of those on the road.