Ryecroft Glenton (RG), a leading North East based business advisory firm, is predicting a company car revolution as new tax rules are expected to boost Electric Vehicle (EV) take up by businesses.
From 6 April, drivers of the cleanest cars will pay no benefit in kind (BIK) tax, with employers also benefiting from lower national insurance costs, as a result of new government tax rates.
This relaxation of company car rates affects wholly electric vehicles, as well as certain hybrids, registered before or after 6 April 2020, and supports the UK’s ambition to dramatically increase the use of EVs.
Company cars have long been used by businesses as an extra perk to reward and retain staff, but a downside has been that they are accompanied by a tax charge based on a car’s CO2 emissions and official list price.
Recent changes in emission testing procedures have caused uncertainty over future tax rates and a subsequent decline in company cars being offered to employees.
The cut in BIK rates will see savings across a wide range of electric cars. For example, a Tesla Model S could deliver annual tax savings of £11,000 for a higher rate taxpayer as opposed to buying a hydrocarbon-fuelled Porsche Panamera.
As an example, for basic rate taxpayers, the purchase of a North East-built Nissan Leaf as their company car can save £1,711 annually compared with the VW Golf 2.0 Tdi.
Simon Whiteside, partner and head of RG’s Business Tax service line, said: “This dramatic change to benefit in kind tax rates will help fuel the EV revolution from April 6, encouraging businesses and company car drivers to make the switch to electric cars. The 2020/21 tax year is the sweet spot for buying an electric company car as a 100 percent first year capital allowance can be claimed in addition to the zero percent BIK and lower national insurance charges.
“While the relevant benefit in kind percentages will increase to one percent in 2021/22 and two percent in 2022/23, these are still considerably lower than rates for petrol and diesel vehicles making the next few years a great opportunity to consider electric vehicles as a low-tax option to the traditional company car.”
