With environmental issues and saving our planet being at the forefront of global issues over the last few years, most people are wondering what changes they can make in their lives to help protect the future of our planet.

One thing people may wish to consider is purchasing an electric or hybrid car. HMRC are keen to support this and as such are offering a variety of tax reliefs to businesses purchasing electric cars. Here we will discuss some of these tax implications to give you an overview of what tax you may expect to pay/save.

Corporation Tax

From a corporation tax point of view, fully electric cars would qualify for First Year Allowances of 100%. This would mean you would get tax relief at the current rate of 19% on the full cost of the car in the year of purchase. (e.g. list price of £50k, tax relief would be 19% of £50k = £9,500).

In comparison, hybrid vehicles with CO2 emissions less than 50g/km would receive tax relief at 19% on 18% of the list price (e.g. list price of £50k, tax relief would be 19% of £9,000 = £1,710).

A key thing to note is that you would continue to get tax relief on a hybrid vehicle for a number of years, whereas you would only receive tax relief on a fully electric vehicle in the year of purchase. If you were to dispose of the vehicle in future, you may have a balancing tax charge to pay at this point.

Vehicle Emissions Tax Relief
0g/km – fully electric 100% First Year Allowances
< 50g/km – hybrid 18% Writing Down Allowances

If you were to finance the vehicle through HP, the interest would also be tax deductible for the company.

 

Leasing a Vehicle

If a vehicle is taken out on a lease, the corporation tax deduction is based on the monthly lease rental payments. With a fully electric vehicle, or a hybrid vehicle with CO2 emissions below 50g/km, 100% of the monthly payments would be eligible for tax relief.

 

Personal Tax

From a personal tax point of view, in the current tax year (2021/22), the car benefit on a fully electric car would be 1% of the list price.

For a hybrid car with emissions less than 50g/km, the car benefit would be between 1% and 13% of the list price, dependent on the exact vehicle spec.

Your personal tax affairs would then dictate the rate of tax due on the car benefit (e.g. 20%, 40% or 45%).

Employer’s National Insurance

Employer’s national insurance would also be due on 13.8% of the car benefit.

VAT

You would be able to claim back 50% of the VAT on the monthly lease rentals if you were to lease a car. This is in comparison to being unable to reclaim any VAT on the purchase if you were to buy the car outright or on HP.

Funding

Should you wish to consider an electric car with a RRP below £32,000 (including VAT and delivery fees), you may be eligible for a government grant of up to £1,500 towards the purchase price.

We would strongly recommend that you speak to us before purchasing a new vehicle for your business as there are a variety of factors to consider, including the exact make and model of vehicle, how it’s going to be funded and your own personal tax affairs. The purchase would also need to make commercial sense to help you in achieving your business goals.

So next time you’re thinking of getting a new vehicle, please give us a call on 01604 356356 or e-mail us at hello@cdaaccountancy.co.uk and we will be happy to help!