Save money by driving an electric car
3rd February 2020
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Multiple tax benefits are available for drivers of electric company cars – and many of us don’t even realise it. HBA Director, Karen Chase, will save over £6,000 this coming tax year as she won’t be paying tax on the benefit-in-kind (BIK). It may finally be time to benefit from driving a company car!

The Government is keen to encourage all drivers to make environmentally friendly choices when it comes to choosing a car and it’s well known that tax policy drives behaviours (no pun intended!). So rewarding drivers choosing a low emission car will spur more of us to make the change to electric.

If you’re a company director, driving an electric car is a very efficient way to extract wealth from the company. If you are using your own car then buy or lease an electric car through the company. The company will pay all of the costs, they are tax deductible and you will pay no personal tax upon it.

Would an electric company car suit your lifestyle?
All employees driving a fully electric car with zero tailpipe emissions over the 2020/2021 tax year will enjoy a 0% BIK rate. Combine this with the fact that electricity is not considered to be a ‘fuel’, which means that you can enjoy using electricity paid for by your employer for both business and private journeys without triggering a fuel benefit charge – a significant saving compared to if you drive a petrol or diesel car. If you pay for the electricity yourself, you may be reimbursed at a rate of 4p per mile without triggering a tax bill, however, be aware that fuel charges are still applicable if you drive a hybrid car.

Karen explains why she bought an electric car. “Previously, I’ve chosen a family car based on size and comfort – not emissions and benefits-in-kind values – but the minute I started to do the calculations for an electric car, it was an absolute no brainer to switch as it saves me money. I saved around £6,000 in the 2019/20 tax year and this is without even taking into consideration that I wasn’t buying petrol. Then there are also the class 1A National Insurance contributions that are payable by the company on tthe benefit-in-kind, which were reduced by £1,500. So it’s a win-win: I save money and my company saves money.”

It’s a win for employees, business and the environment
Even if you don’t want to purchase a brand new car or a pure electric vehicle, you can still benefit from reduced BIK tax levels for the 20/21 tax year. Cars registered before 6th April, 2020 and cars registered after 6th April, 2020 with emissions between 1-50mg and with a pure electric range of 130 miles or more, will also benefit from 0% BIK but this will rise to 1% during 21/22 and 2% in 22/23.

It’s a great opportunity for businesses (as well as charities and local authorities) too. They can claim 75% of the total cost of installation of charging sockets* for electric cars and benefit from no penalties for supplying electricity free of charge to its employees. The company won’t pay any or will enjoy much lower class 1a NIC on their employees BIK too.

Let’s leave the last word to Karen. “I had a very stereotypical image of what electric cars looked like but was pleasantly surprised by the choice on the market and the choice is increasing every year.

I’m very pleased that I have made the switch to electric and I also feel like I am doing my bit for the environment.”

If you’d like to discuss the savings and benefits available by using an electric car, please contact Amy in our tax department who can help you.

*The Workplace Charging Scheme allows for grants up to a maximum of £500 per socket installed up to a maximum of 20 sockets across all sites for each applicant.

About the Author

Victoria H

Member since: 11th March 2014

My name is Victoria Hunter and I'm a true Hertford person - I went to school in Hertford and grew up here. I understand the importance of bringing trusted businesses and the community together, and believe...

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