Many people believe that going electric is a great social responsibility to achieve a more sustainable environment. While this is true, now it also comes with the added incentive of providing you with a great way to save on tax, which you simply don’t get with internal combustion engine vehicles.
As more electric cars enter the market, and as the mileage range increases (which was previously a problem stopping drivers from taking the plunge), there is no better time than now to get an electric vehicle.
So with all that out of the way, let’s find out, what are the tax benefits of going electric?
Benefits in Kind (BIK)
The first tax benefit you should be aware of is Benefits in Kind or BIK for short.
This is one of the most important tax benefits given to businesses. For company car drivers or those who own a fleet of vehicles, there is zero tax on BIK during 2020 and 2021. This tax is also applicable to hybrid vehicles that have 1 - 50g/km emissions and a range of pure electric driving of over 130 miles.
For the future, the tax bands have recently been revealed by the government to be as follows:
- 2021/2022: Will Increase to 1%
- 2022/2023: Will Increase to 2%
This is still really low. However, this isn’t the only tax benefit for electric vehicles. Let’s take a look at the others.
Those with electric vehicles can also get capital allowances. Capital allowances are when companies deduct the full cost from their earnings before tax.
For costs on new electric vehicles, especially those with under 50g/km of emissions, a 100% first-year allowance is available.
If you have a new hybrid vehicle or a pure electric one that has slightly higher emissions, the allowance will be as follows.
- Over 50g/km and below 110g/km - 18% writing down allowance
- Over 110g/km - 6% writing down allowance
Writing down allowances are where you minus a percentage of the value of the vehicle from your profits every year.
However, please be aware that this does not apply to any vehicles that are leased.
Capital Gains Tax
After you’ve bought the car, and have had long use out of it, now is the time to sell it before you get a new one. For many things you buy, you will have to pay a capital gains tax, which is a tax on your profits when you sell something that’s value has increased. However, just like with internal combustion engine cars and a few other specific products and services, you are completely exempt from capital gains tax when selling an electric vehicle.
Exemptions on Congestion Charges
Due to the recent clean air initiatives laid out by the government, electric vehicles are completely exempt from congestion charges. So, if your electric vehicle is travelling anywhere that has a congestion charge, you’ll be pleased to know that you won’t have to pay a penny.
In London at the moment, the congestion charge is £11.50 per day. This all adds up and Londoners will be able to save large amounts by going electric.
As road tax is largely based on emissions from carbon dioxide, road tax for electric cars is extremely low, and for many types, it is £0. So let’s dive into it.
If your electric car has carbon dioxide emissions of 100 g/km or under and is registered between the dates of 1st March 2001 and 31st March 2017, you will not need to pay any road tax whatsoever.
If your electric vehicle is much newer, it may change. If you have a fully electric car, you won’t have to pay anything towards road tax. However, if you have a hybrid vehicle that has emissions under 100 g/km, you may have to pay anything between £0 to £135 yearly. Once again, this all depends on the amount of emissions the vehicle produces.
However, even if you have a fully electric vehicle, there is a possibility of some amount of supplementary vehicle tax you will need to pay. If you paid over £40,000 for your electric vehicle, you will need for the first five years to pay £325 road tax. But, once again, this will still save you much more than if you didn’t go electric, as the road tax for an internal combustion engine car in the same bracket is £475.
Value Added Tax
Unfortunately, a company cannot claim VAT when buying an electric car as a company car.
Saying this, the recent Plug-in Car grant, supplied by OLEV (The Office for Low Emission Vehicles), can help those wanting to purchase these vehicles. They pay their grants to electric car manufacturers, helping provide great discounts to specific electric vehicles.
This is a great help for many looking for a low cost and low tax option for their company car and fleet of vehicles whilst helping the environment at the same time.
Reduction in Mileage Costs
We all know about the fuel prices rising and rising every month. This can often cause budgetary constraints in travelling costs. However, when you go electric, you can avoid these problems. For example, a Nissan Leaf (electric vehicle) only costs 3.9p per mile. A Honda Civic (internal combustion engine vehicle) on the other hand currently costs 10.4p per mile. Here you can see the massive differences in cost-saving that going electric will cause, which is especially great for those who go on long-distance business trips.
Not only do electric vehicles cost less to charge, but they also require much less maintenance. This is due to fewer moving parts and regenerative braking that doesn’t exist in internal combustion engine vehicles on the same level that it does in electric vehicles. This is another massive cost-saving opportunity when thinking about making the switch for your company car or fleet.
Tax Benefits of Charging Electric Vehicles
You’ll be glad to hear that there are many tax benefits when it comes to charging too.
One of the best benefits of switching to electricity is the tax incentives. Domestic electric vehicle drivers only have to pay 5%, and business users only have to pay 20%. Usually, fuel vehicle owners would have to pay an extra duty tax on top, but with electric vehicles, the duty tax is zero.
On top of these benefits, you also have the advantage of convenience, as you can charge electric vehicles from your own home. When charging from home, it’s a good idea to make sure you have a good energy tariff to ensure that these energy costs are kept to a minimum.
Salary Sacrifice Schemes
A salary sacrifice is a way to trade an amount of your salary for a non-monetary incentive like a car for example. For companies that offer this incentive, it is a great way for employees to make the switch to electric vehicles, whilst also providing many tax benefits.
Once the specific electric vehicle has been chosen for the scheme, payment will have to be made monthly coming from the salary. This covers everything from leasing, insurance and maintenance fees. This will all come out before national insurance and income tax contributions, meaning that both parties will save large amounts on both types.
They are the perfect choice for many looking to get great tax benefits on a new car whilst being better for the environment. Before employees go ahead with this scheme, please be aware that your salary will be reduced in order to pay for the vehicle.
Workplace Tax Exemptions
There are many workplace tax exemption schemes in place to help ease the financial burden of businesses buying and installing electric car charging stations up-front.
Known as the Workplace Charging Scheme grant (WCS), it covers up to 75% of the cost of the up-front payment and installation, and up to £350 per socket for a maximum of 40 sockets. For more information, take a look at the government website on the Workplace Charging Scheme grant to find out all you need to know about the application forms you need to fill out and installation guidance.
Speak to an Expert in Electric Vehicle Tax Relief
Thankfully, as you can see above, there are tons of different tax incentives available to help you make the move to electricity. From workplace tax exemptions to road tax and VAT relief, you can save much more when going for an electric vehicle compared to your standard one.
With so many benefits and things you need to know, it can be hard to cover it all in one article. If you are looking for expert advice on electric vehicle tax relief options, we can help.
At Suretax, we are an award-winning accounting firm that prides ourselves on providing expert advice. Contact us today, and we will answer any queries you have about the varying tax benefits that are available, giving you the peace of mind you need before buying electric.