Electric cars are becoming increasingly popular in the UK. Not only are they kinder to the environment, but they’re also cheaper to run. For small businesses, there’s now an even greater incentive to invest in electric vehicles – electric car tax relief.

Benefits of buying an electric car and why you may want one

Electric vehicles have multiple benefits. By investing in an electric vehicle/s, you can benefit from:

• Cheaper running costs
• Low maintenance costs
• Reduced pollution
• Home charging
• Reduced noise while driving
• No London Congestion Charge for fully electric vehicles

With sales of electric vehicles increasing each year, they’re becoming the smarter choice for UK businesses. The cost to buy an electric vehicle is decreasing, while charging points are becoming increasingly available. 

What are the tax benefits of buying an electric car?

Another key benefit of buying an electric car relates to tax. In 2019, the Treasury announced that electric company car drivers would be exempt from benefit-in-kind (BIK) tax, from April 2020. This electric car tax relief will increase to 1% in 2021 and 2% in 2022, helping businesses to forward-plan their finances. It’s an incentive that aims to increase the number of electric vehicle registrations, which rose considerably over the last year. With more than two-thirds of electric vehicles in the UK being registered to businesses, it’s a route that many businesses are taking to ensure social responsibility, as well as save money on their running costs.

Are electric cars free of road tax?

Road tax is now calculated based on the volume of CO2  emissions produced by a vehicle. According to new vehicle tax rates, pure electric cars with no tail emissions will not pay road tax. The exception is for cars registered after 1st April 2017 that cost over £40,000. These vehicles will be subject to a charge of £350 per year for the first five years, a saving of £150 a year compared to diesel and petrol vehicles.

Is there a tax credit for electric cars in 2020?

Electric cars will incur no benefit-in-kind tax for the 2020-21 tax year. This electric car tax relief is potentially a big saving for employees, making them more likely to choose an electric vehicle as a company car.

Are electric cars tax-deductible in the UK?

If an electric car has CO2 with less than 50g/km of emissions can also qualify for 100% first-year capital allowances. This means a business can deduct the total cost from its pre-tax profits.

Can you claim VAT back on electric cars?

Cars, whether electric or not, can be eligible for a VAT reclaim if they met certain conditions. According to the Government, VAT can be reclaimed on ‘a new car if you use it only for business’. If used personally, which includes journeys to and from home, 50% of the VAT can be claimed when leased or hired and, where purchased through HP or PCP arrangements, VAT is unable to be reclaimed. All maintenance costs and repairs are again eligible for tax reclaims as is the cost of running the car itself. It’s worth checking with us the guidance to make sure you’re fully aware of what can be reclaimed, and what can’t.

Is it worth having an electric company car?

For businesses, electric vehicles can be very beneficial. They show social responsibility and a commitment to protecting the environment, as well as being eligible for a whole range of benefits. For employees, an electric vehicle as a company car provides an eco-friendly choice, while also benefiting from congestion charge relief and fewer out-of-pocket expenses. The benefit-in-kind relief is a big incentive to choose an electric vehicle, and as is the congestion charge exemption. The running costs of an electric car are considerably smaller than a regular fuel vehicle, making it an effective option for businesses looking to save money.

How far back can you claim VAT?

Businesses are able to claim VAT for purchases made before the company was VAT-registered. The Government lists the terms as 4 years for goods or 6 months of services. You can find further information on reclaiming VAT on the Government’s website. 

More and more businesses are turning to electric vehicles. Whether for a sustainability commitment or the benefit of a lower running cost, a business stands a lot to gain from investing in electric vehicles and offering them as a company car to your employees. 

While the initial cost might seem increased, there is potential for businesses to make a lot of savings on their company vehicles by switching to electric. With electric car tax relief, as well as multiple financial benefits, a move to electric vehicles could be just what you need for your business to save money.

If you have any questions about electric car tax relief then please contact us