Electric vehicles are evolving and offering more range than previously. So, you might be considering switching from petrol or diesel for your next car.

No matter what your view is about cars run on electricity, they could be a wise choice for businesses.

There are a wide range of tax benefits if you choose to plug in, as this short guide shows.

Benefit in kind

The taxable ‘benefit in kind’ of a company car is determined by the vehicle’s CO2 emissions. For the 2019-20 tax year, low emission cars (classed as up to 50g/km) were taxed at 16 per cent of the list price, or 20 per cent for diesel cars.

From April 2020 the tax charge for electric-only cars fell to 0 per cent but for 2021/22 it increased to 1 per cent and then further increases to 2 per cent for 2022/23. There have also been reductions for electric hybrids, depending on their electric-only range.

Salary sacrifice

You are able to finance an electric car through a salary sacrifice scheme. This is where an amount of benefit is valued as the higher amount of either the amount of salary that is paid or the taxable benefit. This is usually a good option for higher and additional rate tax payers to reduce their marginal rate of tax.

Taxes for electric vehicles

A further incentive to choose an e-vehicle is the road tax. The rates for all 100 per cent electric vehicles are now £0 and this will apply until at least 2025. This is a huge saving when you consider the hundreds of pounds you can find yourself paying for bigger petrol or diesel vehicles.

Government support

To encourage electric vehicles, the government is offering grants of up to £2,500 towards the cost of a plug-in vehicle. There is a £3,000 grant for small vans of less than 2,500 kg gross vehicle weight and a £6,000 grant for large vans between 2,500 kg and 3,500 kg gross vehicle weight.

This grant only applies to vehicles that cost less than £35,000 and is available at the time of purchase.

To qualify, the vehicle must have an electric range of at least 70 miles. For hybrids, it must have combined CO2 emissions of 50g/km or less. This is very helpful, particularly for contractors or those working in the building trade who require vans.

Expenses

Employees using their personal electric vehicle for business journeys are entitled to claim an annual, tax-free mileage allowance. This is 45p per mile for the first 10,000 miles driven and 25p per mile for any additional miles driven.

Car charging

If your business installs charging points for electric vehicles between now and March 2023, 100% first-year allowances can be claimed on the investment.

In addition, if you allow your employees to charge electric vehicles at your workplace for free, this does not count as a taxable benefit in kind.

For advice about tax on vehicles, you can contact our team today for advice.