As the UK moves towards a more sustainable future, electric vehicles (EVs) are increasingly becoming a focal point for businesses looking to reduce their carbon footprint and enhance their bottom line.
The Government has introduced several incentives to encourage companies to transition to electric vehicles, making investing in one financially sound. In this blog post, we’ll explore electric vehicles’ key tax benefits for UK companies.
Capital allowances
If you purchase a brand new electric car or zero-emission goods vehicle through your company, you can claim the 100% first-year allowance, which means that the cost of the vehicle is deducted from your pre-tax profit in the year of the purchase. This ultimately reduces your tax bill.
You can claim the allowance if the company purchases the vehicle outright or via a hire purchase agreement—but not if the vehicle is leased under an agreement where the company doesn’t own it.
Polluting cars do not qualify for 100% allowances but write down allowances each year. Opting for an electric car, therefore, offers a significant tax advantage. However, commercial vehicles qualify for 100% allowances under the annual investment allowance (AIA).
Corporation tax deductions
If you obtain an electric car through a lease agreement or hire purchase, you can save on corporation tax.
For leased vehicles, the monthly rentals will be included in the profit and loss account as a business expense, which reduces the company’s taxable profit and corporation tax for the year. Hire purchases and the 100% first-year allowance will also benefit from this.
VAT
When your company obtains an electric vehicle via an outright or hire, you can reclaim the VAT on the price – if you’re registered for VAT. To claim, the car must have been driven for business use only. Commutes do not count as business use.
If the car is leased, the company can reclaim 50% of the VAT from the lease payments.
Benefit-in-kind
Like any company car, if you, another director or an employee use an electric company car for personal reasons, a benefit-in-kind charge (BIK) will arise.
The BIK rate for a fully electric car is 2% of the vehicle’s listing price, a saving on the BIK for petrol and diesel cars that can be up to 37%, depending on their emissions.
Specifically, the company will take the car’s listing price and apply the 2% BIK rate. It will then multiply the employer’s National Insurance rate (13.8%). The employee will also take the car’s listing price, apply the 2% BIK rate, and multiply that by their income tax rate.
Grants
In addition to the tax benefits of purchasing an electric car through your limited company, grants are available.
For example, the plug-in car grant is available for cars costing no more than £32,000 (including VAT and any delivery fees), and the maximum grant available from the Government is £1,500. Businesses don’t need to apply for the grant: it should be applied automatically as a discount from the car dealership on the vehicle’s purchase price.
Meanwhile, the workplace charging scheme grant is available for the installation costs of charging points at a business address.
If you need help unlocking your company’s tax benefits from electric vehicles, contact us. We’ll do all we can to help.
