For over a decade I have been advising company directors on the high cost of putting their car through the business. However, with the tax incentives available for electric cars it might be time for a U-turn.
Should I buy an electric company car?
Imagine being stood in the car show room considering whether you should buy an electric car. You are busy considering which model will suit you best and the sales team start telling you about the many benefits of buying through the company: the company pays it for you; something good about VAT; maybe you will even get a better finance rate. What they may not mention is the Benefit in Kind tax charge which on most cars will easily outweigh these savings. Electric cars are different.
Company car tax is lower for EVs
Benefit in Kind tax is payable when your employer provides you a car or fuel for private use. It is a charge that is added to your employment income before your personal tax bill is calculated.
There is a sliding scale of taxable values and the amount you pay depends on the vehicle’s CO2 emissions. For gas guzzlers it can be as high as 37% of the list price every year. At the other end of the scale are electric vehicles, where the charge is currently 1% (due to increase to 2% next year). When the vehicle’s list price is high, your personal tax bill is likely to be considerably lower for choosing an electric car instead of a traditional fuel.
The company also benefits, as they are able to deduct the cost of the vehicle from their taxable profits in the first year, rather than spreading tax relief over years. Some qualifying vans and commercial vehicles can also get the new ‘super deduction’ of 130% announced in this year’s budget.
Before rushing out to swap your personal car for a shiny new electric vehicle, let’s consider the potential costs too.
As the accountant, I would want to know whether the range of the car will be sufficient for its intended use. If you are buying a car for your sales team, will it get them far enough or will you have to pay them to sit in service stations waiting for a recharge – I can imagine the subsistence bills going up even if the fuel bill comes down.
If you choose a hybrid, what is the fuel economy of the combustion engine? It is all very well having a little bit of free electricity, but you could end up paying hundreds of pounds extra every month in lease costs, just to find out that the car spends most of its time inefficiently burning fossil fuels, as you dart around the country at 70 miles per hour.
If most trips are short range then fuel economy and charging may not be a problem. There are government schemes aiming to encourage employers to install chargepoints at the workplace and employees to do the same at home. As ever, a little bit of planning can end up saving you money for years to come. I would certainly want to calculate the likely fuel cost before buying a new vehicle rather than finding out afterwards.
There are some definite advantages to purchasing electric vehicles as company cars at the moment. Just make sure to consider the cost of how you will be using the vehicle before you buy it.
If you would like help working out whether it is time to get an electric company car, our Management Information team can help. Contact us by emailing email@example.com or calling us on 01823 617580. We advise directors on the cost and benefits of business decisions, helping them to plan the future and make more profit.