Company Car Tax - Time to Consider a BEV

tesla

Right now most business owners will want to hold on to any spare cash in their business or ensure its spent on investment activities rather than luxuries but if you really need a new car then its time to seriously consider a BEV.

Battery Electric Vehicles (BEVs) have been given extremely favourable tax breaks for the next 3 years to incentivise switching to Electric.

Recap of BIK for Company Cars

Benefit in Kind (BIK) tax on company cars is calculated by apply the appropriate percentage (a sliding scale based on fuel type and emissions) to the “list price” of the vehicle.

For example, the BIK value of a Mercedes CLS220 with CO2 emissions of 128g/km and a list price of £48,840 would be calculated as (applied percentage x list price) = (32% x 48,840).

The taxable benefit value which is then added to your taxable income is £15,628 which will be taxed at your applied rate as if you had been paid this amount in cash.

For a higher rate taxpayer that means £6,251.20 in tax (40% x £15,628).

Benefits of Electric

Thanks to the new applied rates for BEVs even the ludicrously priced Tesla Model S Performance with an eyewatering £96,790 list price becomes a bargain.

2020-21 BEVs applied percentage 0% x £96,790 = £0 BIK x 40% = £0.00 TAX!

2021-22 BEVs applied percentage 1% x £96,790 = £968 BIK x 40% = £387 TAX!

2022-23 BEVs applied percentage 2% x £96,790 = £1936 BIK x 40% = £774 TAX!

Before you rush out

There are of course other considerations such as the cost of the vehicle, but you don’t have to buy a Model S, there are many 100% battery powered vehicles available for half the price.

If you buy a vehicle with emissions below 50g/km before April 2021 then it qualifies for First Year Capital Allowance enhancement which enables you to claim 100% of the cost as a tax-deductible expense. (VAT is not reclaimable on any Company Car where there is an element of private use)

You might prefer to lease, reducing the capital commitment and enabling you to reclaim 50% of the VAT charged on lease payments. You might also consider a short lease term possibly only 36 months as we have no visibility of the “applied percentages” beyond April 2023.  

Conclusion

Company cars have mostly been a no-go area for business owners, in many cases it being preferable to purchase/lease your car privately and recharge mileage. With more Zoom meetings resulting in less rechargeable mileage and the changes to BIK tax on electric vehicles Company Cars could become popular once again.

2020 Budget Update

Related Posts

© 2018 RPJ Accountancy Ltd. All Rights Reserved.