COMPANY CARS – YOUR QUESTIONS ANSWERED
Released On 25th Apr 2022
We are regularly asked common questions by many of our clients about the issues that really affect them.
That is the reason we recently launched a new Business Owners FAQ Hub on our website.
A frequent query we receive is regarding company cars, whether they should be bought or leased, and the benefits of going green.
Borrowing from our FAQ here are two of the most common queries we receive:
Should the company pay for the car?
A company car can be one way of reducing your annual tax bill but they are still taxed through Benefit-in-Kind (BIK).
This classes a company vehicle as an extra taxable benefit that falls outside of your regular salary.
The latest BIK rates follow the stricter European World Harmonised Light Vehicle Test Procedure (WLTP) emission and economy tests, which means that some cars on paper will have higher CO2 (carbon dioxide) emissions, resulting in a higher rate of tax.
Companies should use the latest car tax rates to reduce their BIK liabilities by selecting lower-emitting vehicles.
Is it more tax-efficient to have an electric company car?
The Government has set up numerous tax incentives for company car users who use electric vehicles (EVs).
It is not surprising then that more businesses have either already made the switch to EVs or are giving serious consideration to doing so. Some of these incentives include the following:
- Benefits in Kind – EVs attracted a 1% tax rate on Benefit in Kind (BIK) in 2021/22. This also applies to hybrid vehicles with emissions from 1 – 50g/km and a pure electric range of over 130 miles. This rate has increased to 2% in 2022/23, but it still makes electric and low emission cars very affordable in comparison to higher emission vehicles.
- Capital allowance – Cars with CO2 emissions of less than 50g/km are eligible for 100% first-year capital allowances. This means that electric cars can deduct the full cost from your pre-tax profits. There may be Corporation Tax to pay when the car is later sold, so this needs to be considered.
- Congestion charge exemptions – EVs are exempt from congestion charging and clean air zone (CAZ) charges. As well as London, many cities have been required by the Government to introduce a Clean Air Zone, including, Leeds, Birmingham, Nottingham, Derby and Southampton. If your company vehicle regularly travels into areas where clean air zones exist, there will be significant cost savings from switching.
- Electric charge points – Any business that installs charging points for electric vehicles between now and 31 March 2023, can claim a 100% first-year allowance for these costs through the Workplace Charging Scheme worth up to £350 per charging point.
- Electric vans – The taxable benefit for having the private use of a zero-emission van was reduced to nil from April 2021. The previous year, electric vans were taxed at 80% of the benefit of a normal van.
- Government grants – The Government’s plug-in car grant provides 35% of the purchase price up to £1,500 towards the cost of an eligible plug-in vehicle costing less than £32,000. This plug-in car grant applies at the time of purchase and is typically given as a discount on the purchase price of a vehicle.
- Leasing – Leasing a vehicle through a VAT registered company allows you to claim back 50% of the VAT on monthly payments and up to 100% of the VAT on the maintenance agreement, which you are not allowed to do when buying a vehicle outright. But be aware that a leased EV will not qualify for the Capital Allowances mentioned above.
- Salary sacrifice – Where an electric car is provided under salary sacrifice, the optional remuneration rules do not apply.
- Tax bands for low emission vehicles – 11 new tax bands for vehicles with emissions of 75g/km and below have been introduced. The Government has also announced the tax rate for the next three years, helping businesses to plan. Electric and hybrid vehicles pay no or very little vehicle excise duty.
If you have further questions about company cars and electric vehicles, please speak to us.
