Tax reliefs available for businesses considering electric cars

19 January 2021

The Government’s announcement on their plan to ban the sale of petrol and diesel cars in the UK from as early as 2030 has left many businesses concerned about the cashflow impact of replacing business vehicles.

The good news for businesses considering changing their vehicles is that up to April 2025, they can benefit from enhanced tax reliefs that are in place to make the transition to electric cars more affordable and beneficial than might have been expected.

Capital Allowances

Cars

Currently, businesses can claim 100% First Year Allowances on the full cost of new cars with Co2 emissions up to 50g/km against their taxable profits in the year of purchase.

This will change from April 2021 with:-

  • new cars emitting Co2 of 0g/km (electric cars) attracting 100% first year allowances;
  • new cars that don’t exceed the 50g/km limit attracting annual allowances of 18%; and
  • cars exceeding 50g/km attracting annual allowances at 6%.

If you are considering purchasing a car with Co2 emissions from 1- 50g/km in the near future, it might be worthwhile ensuring the purchase takes place prior to the change in rates (i.e. 31 March 2021 for companies and 5 April 2021 for businesses) to obtain the benefit of the 100% allowances before they reduce to 18%.

Other First year Allowances

100% first year allowances can also be claimed where a business purchases the following prior to April 2025:-

  • Zero emission goods vehicle (must be a new vehicle); and
  • Electric Charging Points installed at the place of business solely for the purpose of charging electric vehicles.

All of these first year allowances are currently available until April 2025.

Benefit in Kind

Employees suffer a Benefits in Kind tax charge on cars provided by their employers for private use. The tax employees pay depends on the car’s emissions and fuel type, the higher the emissions, the higher the benefit in kind.

Businesses supplying their employees with electric cars make available significantly reduced Benefit charges to their employee’s as the benefit in kind on electric cars for the next few years are as follows:-

  • 2020-2021 - 0% of list price
  • 2021-2022 - 1% of list price
  • 2022-2025 - 2% of list price

These are significantly lower than cars with Co2 emissions.

A company can also increase its environmental credentials by making such a policy change.

If you wish to discuss the above, please get in touch with Lesley Connon or your usual AAB contact.

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