Electric Company Cars. Does the Tax stack up?

Electric Company Cars – does it pay? Between March 2014 and Match 2015 there was a massive rise of electric vehicles sold and registered in the UK. But what constitutes massive? 50 % increase – 175 % increase? Well how does 984% sound?

This October the number of Electric cars on British roads has gone over 85,000! And the main reason for that is people like yourselves… Company car drivers who are sick of high Benefit in Kind charges.

Many business owners would probably benefit from running a personal lease, compared to running their high end executive saloon through the business and saving on corporation tax, when their personal tax contributions massively outweigh the perceived saving. No longer is the choice of hybrid and electric car the exclusive domain of the Californian Lifestyle car… the Prius. Now BMW Mercedes Audi, Volkswagen all offer PHEV and fully electric vehicles in their line up, and new kids on the block Tesla are taking the industry by storm.

But can the slightly higher rentals be justified when put side by side by their electric counterparts. To look at this closer let’s look at the hugely impressive BMW 330e compared to its older brother the 320d. Both are comfortable executive saloons boasting Sat Nav and Bluetooth and DAB as standard. But which makes your money work harder for you?

Let’s start by looking at the confusing world of benefit in kind tax or BIK. BIK is calculated with the cost price of the car, plus VAT delivery and chargeable options over £100 (the P11d value of the car) and a percentage determined by the carbon dioxide emissions; the higher the emissions the higher the percentage.

The employee’s Benefit in Kind is taxed at their own personal tax rate (20% or 40% marginal rate etc.). To get the actual amount payable over the year first multiply the BIK percentage by the P11d value, then by the employee’s tax rate. Below is an example for the afore mentioned BMW’s;

As shown the BIK percentages on hybrid vehicles really do negate higher list prices. Rentals on electric vehicles are also boosted by the scaled government OLEV grants. And the businesses can also benefit; as there are First Year Allowances (FYA) available on Ultra low emission vehicles where the cost of the vehicle can be claimed against corporation tax.

A director or employee who is provided with a company car and receives free fuel will be taxed on this as a benefit in kind.  Fuel benefit is also based on CO2 emissions and fuel type. But the government do not consider electricity to be a fuel for the purposes: “Car Fuel Benefit Charge – as electricity is not a fuel, there is currently no fuel benefit charge.”  from this handy government guide: FACTSHEET – Tax implications of ultra low emission vehicles. This is great news if your company pays for your electric ‘fuel’. A company can have an electric charging station at their offices and there is no benefit in kind tax for any employee that uses it to charge their car. So, potentially driving to work and back home again could be on pure electricity and there is no tax charge!

This article was supplied by Robin Southern of DSG Auto in Stockport