Are you a business owner thinking about a new car? Should your next car be an electric company car?

February 20th, 2020     Tax News

If an electric car is practical for you, new tax rules from April 2020 mean that buying an electric car through your business could be far more attractive for you than it has been before!

What’s changing?

From 6 April 2020 the benefit in kind tax rates for employees (including directors) for 100% electric zero CO2 emission cars will be 0%. This is a massive change, as in the current tax year to 5 April 2020 a zero emission 100% electric has a car benefit value of 16% of the list price.

The rate of benefit in kind will go up to 1% in 2021/22 and to 2% in 2022/23, but this is still very low!

Putting numbers on it

Taking a Tesla Model 3 at £39,490 the benefit in kind for the current and next three years is:

Tax year Benefit in kind % Benefit in kind value Tax at 20% Tax at 40%
2019/20 16% £6318 £1264 £2528
2020/21 0% £0 £0 £0
2021/22 1% £394 £78 £156
2022/23 2% £788 £157 £314

 

Is it good for my business?

Yes it is, for new fully electric cars you can usually use the full cost of the electric car to reduce your business tax.

The current rules gives a 100% allowance for new zero emissions cars, so a £25,000 zero emissions car could save your limited company business as much as £4,750.

The employers national insurance cost (13.8% of the benefit in kind value) is reduced as well.

Does the method of financing the car affect the tax savings?

How the car is financed does not affect the personal tax position with the lower benefit in kind rates detailed above.

However if your company finances the vehicle in a different way, other than a straight purchase or hire purchase e.g. contract hire then the way the company gets tax relief may be different.

Is this for you?

For the first time in a long while a company car may now be an attractive proposition, provided a 100% electric car meets your needs and is financially cost effective for you. You can also feel good about having less impact on the environment!

What next?

This information is of a general nature so before making a decision either way, get advice that is specific to your circumstances, you can speak to us for tailored advice.

With the Budget coming up on 11 March some of the tax rates and allowances may change.

We work with business owners to build the businesses they need to have the life they want, so if you want to talk about tax efficiency and company cars, get in touch with me on 01803 296678 or email andrew.price@andrewprice.co.uk