Electric cars are becoming ever more popular and are now considered a real alternative to petrol and diesel cars. They are generally better for the environment with the added advantage of being cheaper to run. For small businesses, there are significant tax reliefs available compared to hybrids and other non-electrics.
BENEFITS OF BUYING AN ELECTRIC CAR
Electric vehicles have many benefits:
- Cheaper running costs
- Lower maintenance costs
- Reduced pollution
- Home charging (refuelling)
- Reduced noise
With sales of electric vehicles increasing each year, they’re becoming the tax efficient choice for many UK businesses. The cost of buying an electric vehicle is generally decreasing, while charging points are becoming increasingly available.
A key benefit of buying an electric car relates to the tax savings on offer. The benefit-in-kind (BIK) tax from April 2020 was set at nil. This has increased to 1% in 2021 and will be 2% in 2022, however it is still far more generous than the BIK rates for diesel and petrol models. This tax incentive aims to increase the number of electric vehicle registrations, which is now rising considerably.
ARE ELECTRIC CARS TAX-DEDUCTIBLE?
New electric cars qualify for 100% first-year capital allowances. This means a business can deduct the total cost from its pre-tax profits (including the VAT element). All maintenance costs and repairs are again eligible for tax reclaims, as is the cost of running the car itself.
CAN YOU CLAIM VAT BACK ON ELECTRIC CARS?
Generally speaking no! However, cars (whether electric or not) can be eligible for a VAT reclaim if they met certain conditions. VAT can only be fully reclaimed on a new car AND if it is used exclusively for business. If the car is used personally, which includes journeys to and from home, 50% of the VAT can be claimed if the car is leased or hired.
DO I HAVE TO PAY ROAD TAX?
Vehicle Excise Duty (VED) is charged based on CO2 emissions – as there are no emissions from electric cars, no VED is charged.
The main drawback is the initial cost of electric cars, which is still quite a lot higher than their petrol and diesel alternatives. That said the cost of electric cars is falling as demand increases. The other main issue is the availability of charging points, although again this is becoming less of a problem as the number of electric cars increases and thus demand for charging points increases.
More and more businesses are buying electric cars, either to take advantages of the tax savings on offer or as part of their sustainability strategy. The first year capital allowances and not having to draw money from the business are the main financial benefits and help to offset the initial high cost of purchasing an electric car.
As for the main options on the market, the following have been noted as the most popular electric vehicles according to a recent Auto Express article:
- Hyundai Ioniq 5
- Tesla Model 3
- Porsche Taycan
- Ford Mustang Mach-E
- Renault Zoe
- Tesla Model S
- Kia e-Niro
- Volkswagen ID.3
- Polestar 2
- Jaguar I-Pace
If you have any questions about electric cars and the tax savings on offer, please do get in touch on 01926 851516.