Company Car Benefits
A benefit in kind is incurred when there is personal use of a company vehicle.
For both the 2022/23 and 2023/24 tax years, the benefit in kind for an electric vehicle is set at 2% of its manufacturers list price, making it highly competitive when compared to petrol, diesel or plug-in hybrid alternatives. This calculation is the same whether the car is owned or leased.
From 2024/25 onwards, the rate will increase by 1% each year until 2027/28 when it will reach 5%, the rate at which it is capped for fully electric vehicles.
Vehicle Excise Duty
Currently electric vehicles are exempt from paying vehicle excise duty (VED). However, in the Autumn Statement it was announced that this exemption would be removed from April 2025 and electric vehicle owners will instead pay at the rate currently incurred by vehicles with CO2 emissions between 1 and 50g/km for the first year before this increases to the standard annual rate.
Many electric vehicles will also be hit with an additional VED cost as the Expensive Car Supplement exemption enjoyed by electric vehicles will also cease at April 2025. Currently this applies to any vehicles with a list price equal to or greater than £40,000. Currently, this is set at £355 for the first five years following the year of registration.
Capital Allowances
The Autumn Statement saw no changes to the capital allowances position on the purchase of new and unused electric cars, where a 100% First Year Allowance is available on zero-emissions models. HMRC accept that a car is unused and not second hand even if it has been driven a limited number of miles for the purposes of testing, delivery, test driven by a potential purchaser, or used as a demonstration car. On the purchase of such cars, tax relief remains available in the year of purchase. This remains a generous tax incentive given that cars do not qualify for the Annual Investment Allowance (by which most small business claim 100% tax relief on plant and machinery additions) and so any tax relief in year of purchase would otherwise be limited to 18% of the cost at most and only if CO2 emissions are 50g/km or less.
It was also announced that in the 2023 Spring Finance Bill the 100% first year allowances for electric vehicle charging points would be extended to 5 April 2025 (or 31 March 2025 for companies).
Leased Cars
Where an electric car is leased by way of an operating lease (ie. hired for a set number of years and then returned), the full monthly rental payment is an allowable expense against tax. If it is used as a company car and so will have an element of private use, only 50% of the VAT on the monthly rental payment can be claimed.
As the government weights up increasing tax revenues against the need to reduce the UK’s carbon emissions, the incentives available to businesses are sure to be reviewed and updated regularly.
If you want to know more, we also offer advice around the tax implications of car expenses and limited companies.