Zero emission electric cars are now being released by most manufacturers, business owners and its employees may be eligible for financial incentives that encourage clean energy use in the UK. Below we list some of the benefits:
Company Car Tax (Benefit in Kind)
From the 6th April 2021, both new and existing zero emission cars are eligible for a 1% BiK (Benefit in Kind) rate for the 21/22 tax year. The BiK rate will rise to 2% in 22/23. It will be held at 2% for 23/24 and 24/25. The average petrol or diesel vehicle has a BiK rate of 20% – 37%.
100% First Year Allowance (FYA)
First Year Allowance is claimable for up to 100% of the cost of qualifying low emission and electric cars. By choosing a zero emission car, your business can claim a 100% year one deduction for the cost of the vehicle.
The First Year Allowance is applicable to new vehicles and cars considered new despite previously being used, such as vehicles registered as a sales or service demonstrator by the manufacturer.
In the March 2020 Budget, the Chancellor announced that 100% FYA for businesses purchasing low emission cars will be extended to the 31st March 2025.
Car Fuel Benefit Charge
As electricity is not classed as a road fuel, electric cars have no fuel benefit charge. That means employees are exempt from paying Benefit in Kind on electricity provided by their employer to charge an electric company car.
Advisory Fuel Rates
As electricity is not classed as a road fuel, the car fuel benefit charge does not apply to electric charging. If an employee uses a company car, no Benefit in Kind occurs when charging their vehicle at the workplace.
The advisory fuel rate for fully electric vehicles has been confirmed by HMRC as 4 pence per mile.
Class 1A National Insurance Contributions (NICs)
Class 1A NICs based on the vehicle’s P11D value and relevant BiK rate are applicable as determined by the official carbon emissions and fuel type.
Salary Sacrifice
Salary Sacrifice enables employees to sacrifice some of their gross salary in order to receive the benefit of driving a fully electric company car. As the sacrifice is taken before tax and National Insurance contributions are deducted, employees save costs in the acquisition of their new car in a similar way that other savings such as childcare, gym membership or cycle-to-work schemes operate.
From a company’s perspective, this scheme provides an opportunity for organisations to offer employees a new car at a lower cost than they could achieve in the retail market in a tax efficient way. The company may also benefit from reduced National Insurance contribution payments from the scheme.
Salary Sacrifice is either offered by an employer or a leasing provider.