News
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:
ï‚· 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.
ï‚· 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
