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Employer Company Electric Car Taxation

26 - 11 - 2021

The provision of a company car as part of remuneration for an employee has recently become more favourable for both employers and employees in terms of the taxation being applied. The UK government is promoting the widespread use of electric and Ultra Low Emission (ULEV’s) vehicles as part of its drive for a greener future. 

What is the affect on the employee?

 

The employee is still taxed where a vehicle is provided as part of their employment which they can use privately. The calculations are the same as for all other vehicles. However the advantage is that the Benefit In Kind (BIK) percentage applied to electric and ULEV’s can be much lower resulting in a much lower amount of tax due. Please see our Employees Company Cars and Electric and Ultra Low Emission Company Cars Taxation Advice Notes for further information.

Does the lower taxation cost to the employee affect the employer?

 

Yes. The employer pays class 1A National insurance on the BIK value to the employee. The lower the vale to the employee the lower the class 1A NI will be charged to the employer.

 

Can I reduce my Corporation Tax bill?

 

Yes. The business can deduct all of the running costs of the vehicle. There is also the possibility of claiming capital allowances on cars purchased and used in the business. This means that the employer can deduct part of the value of the vehicle from the profits before corporation tax is calculated.

 

What capital allowances can I claim?

 

The capital allowances that can be claimed are referred to as writing Down Allowances. The WDA is a percentage of the purchase price of the vehicle. The percentage that can be claimed depends on when the car was first registered and the CO2 emissions. In general terms the newer the car and the lower the emissions the higher the allowance is likely to be. For example in 2021/2022 tax year a car registered since April 2021 with 0g/km CO2 or electric would be eligible for first year allowances which means the full cost could be deducted from profit before tax. The allowances available are fairly complex and we would advise taking advice before purchasing a vehicle.

 

What if the business only leases the vehicle rather than outright purchasing?

 

What can be claimed will depend on the type of lease. How the lease is treated depends on whether the business will end up owning the vehicle or whether the vehicle will be returned at the end of the lease with no option to buy.

In general terms:

 where the business will own the vehicle it will be treated as owning the vehicle from day one and will be able to claim capital allowances, running costs and interest on the payments.

 where a vehicle will be returned the business will be able to claim the costs of leasing from the taxable profits. The type of lease is, therefore, very important when considering the tax consequences.

 

If you would like to discuss any of the issues noted above or wish to discuss a specific electric vehicles please contact us on: 01244 625 500 or 01978 364 000 contactus@foremansllp.com  

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Fixed Data

Assumptions

General                                                                                                                              

• The user is over 21 and subject to tax in the UK
• The user wishes to minimise their tax liability
• The user is subject to national insurance i.e.he/she is not over retirement age
• Only current tax rates and limits are applied
• No tax mitigation payments are made e.g. pension contributions
• Only 3 digit letter 'L' tax codes shown in the drop down list can be entered 
• The user does not have a turnover greater than £100,000 where fewer reliefs and or higher taxes may apply

Expenses

• All miles claimed as expenses are for business use using a personally owned car or van
• All other expenses claimed are wholly, necessarily and where appropriate exclusively for the benefit of the business

Foremans LLP Charges

• Foremans fees associated with Limited Company, Sole Trader or Umbrella are as per published rates
• Foremans current Service Costs are allowed for in all calculations.

Holiday Pay

• Holiday pay is accumulated week by week by Umbrella or Agency employer but paid out during the year

VAT

• Limited Company or Sole Trader will be VAT registered
• Limited Company or Sole Trader will take advantage of Flat rate VAT
• Flat rate applied includes the benefit of the additional 1% applicable to the first year of VAT registration

Limited Company Conditions

• One director / one shareholder in a Personal Service Company
• Director of Personal Service Company elects to vote for 100% dividend after salary, costs and expenses
• Director's salary is maximum salary to the primary threshold for NI
• The Limited Company is trading normally i.e it is not subject to IR35 and is not a Managed Service Company

NOTES

• The Current tax rates are taken from the Fixed Data Table
• The current Value Added Tax Rate is 20% and is applied to all invoices and expenses as appropriate
• The Director's Salary is fixed in relation to National Insurance thresholds. Higher Rate Taxpayers should consider the advantages and disadvantages of a larger annual salary or bonus
• Higher Rate Taxpayers may wish to consider the advantages and disadvantages of shared ownership of their business
• Users with a tax code other than three digits and letter "L" may telephone or email our Development Department to request a detailed calculation
• Generally the use of an Umbrella rather than an Agency payroll is only efficient if sufficient weekly expenses are allowable and claimed
• The expenses claimed under an Umbrella should not prevent the proper operation of National Minimum Wage