Electric Car – a most tax efficient company car – for more than one reason

The way in which company car benefits are calculated is changing from April 2020. There will be two parallel car benefit tables for cars registered before 6 April 2020 and those registered on or after that date.

Electric Cars

However, the position for purely electric cars is slightly different. From 6 April 2020 the taxable benefit for all electric cars will be reduced to zero, irrespective of when the car was registered.

In 2019/20 the taxable benefit for an electric car is 16% of list price, so drivers of electric cars will be delighted that their taxable benefit for 2020/21 will be zero! This won’t last, as in 2021/22 the taxable benefit will rise to 1% of list price, then 2% of list price in 2022/23. This assumes that this tax policy will remain in place under the new government.

Tax Tip

If you want to take advantage of these low company car benefit rates and purchase (rather than lease) an electric car through your Ltd company, wait until April 2020 to make the purchase. The 100% first year allowance for new cars (with CO2 emissions of no more than 50g/km) is available for purchases made before 1 April 2021.

This means there is a sweet spot in 2020/21 where the company gets 100% capital allowance on the purchase of an electric car and the employee has a zero taxable benefit for using the car.

Example

Your Ltd company purchases an electric car for £30,000 and then provides it to you (as Director) as a company car.

Buy it after 6 April 2020 and before 1 April 2021 and your Ltd company will save £5,700 in corporation tax (£30,000 x 19%), and you will not pay any income tax on it, since it is classed as a 0% benefit in kind.

• Posted on February 7th, 2020 in Tax Advice