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What are the tax benefits of switching to an electric company car?

What are the tax benefits of switching to an electric company car?

Company tax benefits on electric cars – should I switch?

The government’s current plan to ban petrol and diesel cars from 2030, apart from some hybrid models, means companies need to start considering alternatives for single company cars and fleets.

To help them meet their planned deadline the government is encouraging companies to purchase or lease electric cars by way of significant tax savings. Electric and hybrid company cars offer notable tax benefits given their low/zero emissions.

So how does the tax system currently work for the benefit in kind on company cars, and how could you gain if you made the switch from petrol or diesel.

How does tax work on company cars?

Any private use of a company car is viewed as a benefit in kind by HMRC, and can attract a high rate of tax depending on the price of the car and level of CO2 emissions. Tax is initially charged as a percentage of the car’s list price when it was new, but then alters according to the CO2 emissions.

If a company pays its employees for the fuel they use personally when using the company car, this is also a benefit in kind and is taxed according to its deemed value. The same percentage is used, but is applied to a set figure called the car fuel benefit.

This is £24,600 for the 2021-22 tax year. Switching to an electric company car, or a fleet of electric company cars, can significantly reduce the income tax charge.

Reduced tax charges on electric company cars

Fully electric vehicles and self-charging hybrids attract much lower tax on benefits in kind than their petrol/diesel counterparts due to the low or zero emissions. For a fully electric vehicle the CO2 rating can be as little as 0g/km.

In the tax year 2021-22, this could give rise to an income tax charge as low as 1% of the price of the car when new, or 2% in the tax year 2022-23. The percentage applied ranges according to the distance a vehicle (either fully electric or hybrid) can travel on a single charge.

The lowest charge of 1% applies to company cars that can travel a minimum of 131 miles on one charge. A sliding scale then applies, with a current maximum of 13% tax charge if the car can only travel up to 30 miles on a single charge.

Switching to electric company cars

The difference in tax applied to this benefit in kind is considerable, whether you opt for a hybrid or fully electric company car. The government is actively encouraging business owners and directors to take the greener option by offering these significant tax savings, and your accountant will be able to explain the specific sums you can save.

If you don’t currently have an accountant or are thinking of changing, Handpicked Accountants can help by providing reliable referrals in your area. We base our recommendations on longstanding working relationships with accountants around the country – please get in touch with our expert team to find out more.

David Tattersall
Speak to a Handpicked Expert today
0800 063 9258

Hi there - I'm David from Handpicked Accountants. If you need help finding the right accountant, simply give me a call. My expertise is in connecting business owners with the very best professional services and I'm on hand to assist you today.

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