Time to switch to an Electric Company Car?
Big benefits are coming from 6th April 2020 for company car drivers choosing a pure electric vehicle – there will be NO benefit in kind and so NO income tax on the car or fuel to pay in 2020/21! This is as a result of the changes to company car tax rates announced for April 2020, designed to encourage you to choose company cars with low levels of CO2 emissions.
What happens now:
Under the current system, the employee has a 'benefit in kind' for having a company car available for personal use. It is calculated based on a percentage of the official list price of the car & the car's CO2 emissions. This is then taxed at 20% for basic rate tax payers or 40% for higher rate tax payers and is usually collected through the PAYE system.
What is changing:
From April 2020 fully electric cars with zero CO2 emissions will have a new 0% rate. This means the benefit in kind is calculated to be nil.
This 0% rate will also apply to any company cars registered from 6th April 2020 with emissions between 1-50g/km and with a pure electric mile range of 130 or more for 2020/21.
The benefit in kind rate will then increase to 1% in 2021/22 and to 2% in 2022/23. Income tax will therefore be paid by the employee for these years, but based on a very low benefit in kind, much lower than the current rate of 16% for electric cars for 2019/20.
A company pays Class 1A National Insurance on benefits in kind. The reduction for fully electric cars to a nil benefit in kind for 2020/21, will mean no Class 1A National Insurance being due on the vehicle for this year.
The cost of purchasing a fully electric car and of installing electric charge point equipment is eligible for 100% first year capital allowances. This will reduce corporation tax for the company in the year of purchase.
There is currently also a workplace charging scheme being offered by the government that provides support for the up-front cost of the purchase and installation of electric vehicle charge points.
If you would like to discuss this further then please contact Alex Frow.