As the popularity of electric cars grows, more people are turning to these types of zero or low CO2 emission vehicles as their preferred company car option. 
 
But does this mean electric company cars are more tax efficient? 
With Making Tax Digital finally coming into implementation at the start of April, some business owners have had their long-time bookkeeping methods thrown into disorder as they have had to make the move from Excel spreadsheets and, in some cases, physical account books, to the digital world. In the world of accounting, using spreadsheets is pretty much obsolete nowadays, and the introduction of MTD was long overdue. 
 
For most business owners, this move over to MTD wasn’t too traumatic, as more and more of us are moving our business practices to online – or cloud-based – methods anyway. Old-fashioned methods of storing information are no longer commonplace (who remembers floppy disks?!) and we, as a nation, are becoming more digital-savvy. 

Considerations when choosing an electric car 

Before rushing out and buying your shiny new electric car, we recommend that you do your research. Here are some things you should consider: 
 
The CO2 emissions rating. 
The vehicle’s range. 
The list price of the car, including any extras. 
A Plug-in Hybrid Electric Vehicle (PHEV) or All Electric Vehicle (AEV). 
What tax bracket will the vehicle fall into. 
How and where are you going to charge it. 
Who will pay for the electricity needed to charge it, employee or employer? 

Company car tax on electric vehicles 

Tax for the employee 
 
The table below shows the BiK rate payable for company cars registered after 6 April 2020. The percentages are applied to the full list price value of the vehicle, including any extras. 
 
For example, if you purchase an AEV for £40,000, with zero emissions, there is no BIK for 2020/21. However, in 2021/2022 this rises to 1% / £400 and in 2022/2023 this rises to 2% / £800. If you fall within the basic tax rate band, which is 20% of the £400 BIK, therefore you will pay £80 tax on your electric company car. 
 
Once your vehicle moves away from being zero emission, these percentages increase dramatically, and you could end up paying much more. 
Vehicle CO2 emissions 
2020-21 
2021-22 
2022-23 
0 g/km 
0% 
1% 
2% 
1-50 g/km (electric range >130 miles) 
0% 
1% 
2% 
1-50 g/km (electric range 70-129 miles) 
3% 
4% 
5% 
1-50 g/km (electric range 40-69 miles) 
6% 
7% 
8% 
1-50 g/km (electric range 30-39 miles) 
10% 
11% 
12% 
1-50 g/km (electric range <30 miles) 
11% 
13% 
14% 
For example, if you purchase an AEV for £40,000, with zero emissions, there is no BIK for 2020/21. However, in 2021/2022 this rises to 1% / £400 and in 2022/2023 this rises to 2% / £800. If you fall within the basic tax rate band, which is 20% of the £400 BIK, therefore you will pay £80 tax on your electric company car. 
 
Once your vehicle moves away from being zero-emission, these percentages increase dramatically, and you could end up paying much more. 
Employer’s National Insurance (NI) 
 
There is currently an employer’s NI charge of 13.8% a year, based again on the BIK value. 
 
Following on from above, if the list price of the fully electric vehicle is £40,000, the BIK value is £400, this would result in the NI charge of £55.20 which is payable by the company following submission of a P11d form each tax year. 
Tax relief for the employer 
 
When buying a brand new fully electric car or one that has a CO2 rating lower than 50g/km, the employer can claim 100% capital allowances on the price paid. This therefore reduces the Corporation Tax for the company. 
 
For example, a vehicle with a list price of £40,000 will reduce your taxable profit by £40,000 and 19% of that gives a corporation tax saving of £7,600 in the year of purchase. 
 
The employer can also claim corporation tax relief on the vehicle maintenance and insurance costs. 
 
New versus second-hand vehicles 
 
The advantage of buying a new (first registered owner) zero emissions electric car is that the employer can claim 100% of the paid price as a capital allowance (see above). 
 
For new hybrid cars, the 100% capital allowance is no longer available – instead you will qualify for a standard 6-18% writing down allowance. This is dependent on its CO2 emissions. 
 
The capital gains allowance on a second-hand electric company car is not the full 100%, instead you will be able to claim a standard 18% writing down allowance each year. This is also dependant on its CO2 emissions. Click here to find out more. 
 
Note: The new super-deduction for companies, unfortunately does not apply to electric cars. 

Reclaiming VAT on electric company cars 

To reclaim the VAT, the car must be for business use only. Bearing in mind that the HMRC views any commuting between your home and regular place of work as personal use, and not business travel, proving that the car is exclusively business use is very unlikely. 
 
Regardless of whether the car is purchased personally or by the company, if it’s purchased for a mix of personal and business, VAT will be charged, and you cannot reclaim it. 

Other Frequently Asked Questions on Electric Company Cars 

Can I use an electric car as a pool car? 
 
Yes, this is possible – but it still needs to meet all the conditions of a standard pool car, i.e:- 
 
It is available to, and used by, more than one employee, 
It is made available to employees by reason of their employment, 
It is not ordinarily used by one of the employees to the exclusion of others, 
Any private use by an employee is merely incidental to their business use of it, and; 
It is not normally kept overnight on or near the residence of any of the employees unless it’s kept on premises occupied by the provider of the car. 
 
Can my company pay for a charging point to be installed at home? 
 
Yes, a business can pay for the installation of a charging point at the employee or directors’ home without incurring a tax charge on the employee. 
 
This is also treated as a tax-deductible cost for the company – so the company will get tax relief on the cost. 
 
What about Electric Vans? 
 
Electric vans, unlike electric cars, do qualify for the super-deduction which means a mighty 130% capital allowances are available. For a van costing £30,000, this means £7,410 of tax relief! 
 
There are also no taxable benefits for an employee, even with some personal use. 
 
If you need assistance from an accountancy firm with the tax, NI or VAT calculations on your electric company car purchase, contact us to see how we can help you. 
 
 
 
 
Written by: 
 
Nicola J Sorrell - 
Effective Accounting 
 
Founder | Xero Champion | IR35 Expert 
Share this post:
 
I couldn't recommend them highly enough and will continue to use them for Spiral Static and all future ventures! 
 
 
Matt Badley | Spiral Static 
 
 
 
I have found their help in modernising my accounts invaluable and would recommend them to anyone in a heartbeat. 
 
Matthew Finch | Trailer Aid Ltd 
 
 
 
The whole team at effective accounting are exceptional.  
 
 
 
Jennifer Duthie | Skribbies Ltd 
 
 
 
Nicola is one of the most adept and accessible accountants that I have ever had the pleasure of working with.  
 
 
Carter Stewart | Transworld Consulting Ltd 
 
 
Choosing Effective Accountants has been one of the best decisions we made when we started our company. 
 
 
Matthias Geeroms | OTA Insight Ltd 
 
 
 
Nicola and the team have proven to be extremely professional, efficient and always on hand to answer any questions I have (and I have a lot!).  
 
Emily Hodges | EM Hodges Ltd 
 
 
 
I find the service to be prompt, professional and friendly. 
 
 
 
Simon Weightman | Mercury TS Ltd 
 
 
 
They are quick to respond and are always ahead of the curve for us. Keep it up and thank you. 
 
 
Freda McMahon | Lobster Noodle Ltd 
 
 
Our site uses cookies. For more information, see our cookie policy. Accept cookies and close
Reject cookies Manage settings