Tax Relief for Electric Cars
One of the big talking points at the moment is the tax saving available on electric cars so it seems to be a good time to look at those savings.
The current rules enable tax relief to be claimed for 100% of the vehicle’s cost in the year of purchase. However, only qualifying electrically propelled car purchases made on or before 31 March 2025 will qualify for these First Year allowances (FYAs).
Expenditure incurred on the provision of electric vehicle charging points also qualify for FYAs, but only before 5 April 2023 for income tax purposes (or 31 March 2023 for corporation tax purposes).
Businesses of all sizes can claim FYAs on a car provided that:
- the car is ‘unused and not second-hand’;
- it is registered on or after 17 April 2002;
- it is an electric car, or a car with a car producing zero CO2 emissions; and
- the expenditure is incurred on or before 31 March 2025.
Increased demand for electric cars, coupled with well documented supply chain issues in the motor industry, mean that delivery of the vehicle can take months.
For capital allowance purposes, expenditure is treated as incurred once an obligation to pay becomes unconditional. If payment is not required until delivery, this could delay the date that the relief becomes available. With the above dates in mind, timing is therefore important.
FYAs are designed partly to encourage businesses to invest in ‘green’ business assets, such as electric cars, with the incentive of obtaining tax relief for 100% of the cost in the year of purchase, and no upper limit to the amount of FYAs that can be claimed in any one year.
If a car purchase does not qualify for FYAs, capital allowances are instead available at a maximum rate of 18% per year on a reducing balance basis. Depending on the value of the vehicle, this could take around 20 years for tax relief to be obtained in full for the cost of the car.
The 100% allowances are due to come to and end on 31 March 2025 but that is not to say that HMRC won’t extend that deadline.
In addition to the tax savings available to the company, the rates of benefits in kind tax charged upon the employee are also extremely low. Essentially, as an employee, you will only pay income tax on an amount equal to 2% of the list price of the vehicle and this generally amounts to only a few hundred pounds of tax per year. Compare this to a petrol/diesel powered vehicle where the personal tax can be thousands of pounds per annum.