Company cars as an employee benefit have been around for quite some time however their popularity has dwindled in the past decade as employee taxes charged on the benefit have increased significantly. In 2018 alone, there were approximately 50,000 less company cars on the road. The official stats for 2019 onwards are yet to be released but one might imagine even larger reductions.
It’s not all bad news though. For the tax year 2020-2021 the benefits in kind percentage charge on electric cars has fallen from 16% (2020) to 0%. Simply put, the tax charge to an employee receiving a new fully electric car is zero / free. Based on the current HMRC tables, the zero percent charge to employees is expected to increase to a tiny 1% in 2021/22 and then to 2% in 2022/23. Using the latest Tesla Model S as an example which has a list price of circa £77,980, the employees tax charge assuming they are a higher rate (40%) payer would be:
The perks don’t stop with the employee though. Companies benefit from tax relief on the purchase. Company cars that have emissions of less than 50g/km are eligible for something called a First Year Allowance (FYA). FYA means that a company can receive 100% tax relief on the purchase of the car in year one. This reduction in corporation tax is claimed on the company’s tax return. Based on the above Tesla example, a company could reduce their tax bill by £14,816.2. Comparatively, a standard petrol or diesel company car would only qualify for only 6%-18% relief.
The government’s electric car initiative offers not only a great employee perk but a significant company tax break.
Here at Venn Accounts, we build strong partnerships with our small business clients, and we can become your long-term strategic partners, providing you with the professional, cloud-based accounting support you need for saving on tax expenses – helping make for more positive company year end accounts.