Electric cars are rising in popularity, not just because most of us are more conscious of our individual impact on environmental change but also because there is more choice of cars than ever before. HMRC have introduced some juicy incentives to help persuade us to take the leap from petrol/diesel to electric cars, whether we buy personally or through our businesses.
In this guide, I explore the pros and cons of buying an electric car through your business to help you decide whether it is right for you, depending on whether you’re business structure is that of a sole trader or Limited Company.
Table of contents
1. How Much Tax Do You Pay on an Electric Vehicle?
If you are a sole trader, then any lease or outright purchase of an electric car will be in your name and your options for claiming tax relief on your vehicle are the same as a petrol/desiel car except that you’ll claim 4p per mile instead of the 45p mileage rate. You can read more about how to buy a car through your business as a sole trader in this guide.
If you have set up a Limited Company and would like to buy a company car for yourself or an employee, then these are taxed as a benefit in kind (also known as P11d tax). This means the employee or Director will pay additional income tax based at a fixed percentage of the cars list value. The percentage is set by HMRC based on the emissions or electric range of the vehicle and the Limited Company pays employers national insurance at 13.8% on the same basis. Here is an extract of the current taxable rates applicable to electric vehicles and hybrid:
|CO2 emissions g/km||Electric mileage range||BIK %|
|0||130 and above||1|
|1 to 50||70 to 129||2|
|1 to 50||40 to 69||4|
|1 to 50||30 to 39||7|
|1 to 50||less than 30||11|
|51 to 54||13|
|55 to 59||14|
|60 to 64||15|
|65 to 69||16|
Penny has a Limited Company and wishes to buy herself a company car. She chooses a fully electric 3 door Mini with a list price of £27,900, zero CO2 emmissions and electric mileage range of 145. Penny will need to pay additional income tax at the highest rate of tax she pays (she can find this on her payslip) based on the benefit in kind value of £279 (£27,900 x 1%). So if Penny pays tax at 40%, this will be extra tax of £111.60 (£279 x 40%). The Limited Company who is the employer, will pay additional employers NI at 13.8% of £38.50 (£279 x 13.8%).
Compare this if Penny decide to buy a 3 door petrol Mini with a list price of £16,200 and CO2 emmissions of 130g/km. The current P11d percentage of this car is 30%. So Penny will pay additional income tax of £1,944 (£16,200 x 30% x 40%) and her LTD will pay additional employers NI of £670.68 (£16,200 x 30% x 13.8%).
So, even though the cost of the car is less as a petrol version, the additional P11d tax is significantly more than the electric version.
2. Pros of Buying an Electric Car
- You’ll benefit from the £2,500 (previously £3,000) government grant for cars costing up to £35,000 (previously £50,000) whether you are a sole trader or own an LTD;
- Cars with zero emmissions benefit from reduced or zero road tax since many are currently exempt from vehicle excise duty;
- Reduced benefit in kind rates for Limited Company owners compared to petrol/diesel vehicles (as per the example above);
- Electric cars bring huge benefits to the environment;
- At at an estimated 4p per mile on average, electric vehicles are a much cheaper option to petrol/diesel cars which is a huge saving either to you or your business.
3. Cons of Buying an Electric Car
- You may need to reclaulcate your travel time, particularly on long journies because you need to make sure you can charge your vehicle – this could result in longer time to visit your clients and additional costs like hotels, although these would still be an allowable business expense.
- Finding a charging point near your home can be difficult if you don’t have a driveway, especially as the network of publically available charging points is still limited but growing everyday;
- Limited Company owners don’t avoid the need to submit a P11d form and there is likely to be extra tax to pay, however small;
- Electric cars are more expensive to buy, due in part to the cost of bettery technology, which can offset the benefit of lower tax rates in Limited Companies.