Electric cars have many advantages and have been an attractive choice for business owners as a company car. However, the current benefit in kind charge of 2% is due to rise by 1% a year to 5% for the 2027/28 tax year. So, does it still makes sense to go electric?
Buying a car through your business
Here’s a quick recap of the basics of company car taxation applicable to all car types.
When you buy a car through your business, you are considered to have received a personal benefit in kind (BIK) equal to the car’s value * the relevant BIK rate on which income tax is payable by you each year at your marginal rate.
There are also a number of tax implications for your business including:
Class 1A National Insurance contributions are payable on the benefit in kind
Capital allowances are available on the purchase
VAT on the purchase is not normally recoverable
Advantages of going electric
Basically, it all comes down to the relevant BIK rate which depends heavily on a car’s fuel type, C02 emissions, and in the case of hybrid cars, electric charge range.
Bottom line: if you go fully electric, you’re currently looking at a 2% charge whereas if you go for a diesel or petrol car with higher CO2 emissions you could be looking at anything up to 37%.
That’s a big difference!
Going electric also impacts the capital allowances that are available to your business. With a fully electric car, your business can currently claim 100% first year allowances whereas with a diesel or petrol care with higher emissions you’re looking at either 18% or a much lower 6%
Time to put some numbers on things.
Let’s consider the year 1 tax implications of two popular executive cars the Audi A4 (not electric) and the electric Tesla Model 3 (electric).
You | Audi A4 Saloon 35TDI | Tesla Model 3 | Tesla Model 3 |
|---|---|---|---|
P11D value | £41,000 | £40,000 | £40,000 |
Applicable BIK % | 30% | 2% (current) | 5% (FY 27/28) |
BIK | £12,300 | £800 | £2,000 |
Income tax payable 20%/40% | £2,460 / £4,920 | £160/£320 | £400 /£800 |
Your business | Audi A4 Saloon 35 TDI | Tesla Model 3 | Tesla Model 3 |
|---|---|---|---|
Class 1A NIC (13.8%) | £1,697 | £110 | £276 |
Capital Allowances | £2,460 | £40,000 | £40,000 |
£4,157 | £40,110 | £40,276 | |
CT saved @ 19% | £790 | £7,621 | £7,652 |
As you can see with the electric Tesla Model 3 you’d be far better off tax-wise in year 1.
In future years, your business would continue to enjoy capital allowances on the Audi which wouldn’t be the case for the Tesla, but the benefit of this would still be outweighed by the other tax savings.
Conclusion
In coming years, the tax treatment of electric company cars will be less favorable with the BIK rate for fully electric cars due to steadily increase by 1% a year to 5% in 2027/28.
However, as can be seen from above, even at these higher levels electric cars will still compare favorably to their non-electric competitors.
If you’re set on getting a company car, it’s still worth considering going electric.
Here at Focus we do not charge a fee for preparing P11Ds for electric cars
Other considerations
Fuel benefit charge
Currently, HMRC does not consider electricity a fuel, so your business, can charge (refuel) your car, without you as the employee incurring a benefit in kind.
Electric Vehicle Chargepoint Grant (EVHS)
Under this scheme, individuals can claim 75% of the cost of a charger up to £350. This is only open to homeowners who live in flats or in rental accommodation (flats and single-use properties). A company can then pay for the net cost of the charger which will be tax-deductible.
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