Leasing an electric car through a Limited Company has become very popular due to the generous tax cut in the form of a 2% Benefit in Kind (BIK) rate on fully electric vehicles.
New company car tax rates were introduced to help steer the UK towards its target of Zero emissions and as a result, the rate of company car tax available on fully Electric Vehicles (EVs) was reduced from 16% to 0% in the tax year 2020/21. This increased to 1% in the 2021/22 tax year and is currently 2%.
Whilst the BIK rate on petrol & diesel car makes them tax inefficient, leasing an electric car through your Limited Company has become hugely popular due to the financial benefits to the employee and the employer as well as helping businesses reduce their carbon footprint.
Here’s a list of frequently asked questions regarding leasing an electric car through a Limited Company:
How much personal tax does an employee/director pay?
Personal tax will be based on the list price of the vehicle, the corresponding BIK rate and the employee’s tax rate band.
For example, if an employee is provided with an electric car whose list price is £75,000 then the corresponding taxable benefit for the employee is 2% of £75,000 = £1,500 per annum
If the employee is a basic rate taxpayer then they will pay 20% income tax on the taxable benefit of £1,500 which equates to an annual tax bill of £300.
If the employee is a higher rate taxpayer then they will pay 40% income tax on the taxable benefit of £1,500 which equates to an annual tax bill of £600.
For the use of a £75,000 company car, this equates to either £25 or £50 per month of personal tax which is a highly attractive perk to every employee!Cars registered from 6 April 2022
|CO2 (g/km)||Electric range (miles)||2022-23 (%)||2023/24 (%)||2024/25 (%)|
The BIK rate is calculated using the list price of the electric car (not the rental cost).
How much does it cost the employer?
If the vehicle is leased by the Company, the monthly rentals will be included in the profit and loss account as an expense, which reduces the company’s profit and corporation tax for the year.
Just because something is tax efficient doesn’t necessarily mean it’s the right thing to do – you should make sure your company can easily afford the costs of leasing an electric car through your Limited Company and it won’t impact the cash flow & profit of your business.
The employer would also need to pay Class 1A NICs on the taxable benefit in kind provided to the employee.
Using the example above, the employer’s Class 1A NICs will be calculated as 15.05% of £1,500 which equates to an annual cost of £225.75 and this cost will be included in the profit and loss account as an expense too.
What about the electricity expense?
Where the employer provides a charging point at or near the business premises
- – There is no taxable benefit for a company car even with private use allowed.
- – From April 2018 no taxable benefit where the car belongs to the employee assuming the charging point is available to all employees.
Where the employer provides a charging point at the employee’s home
- – No benefit where the car is a company car.
- – Benefit where the employee uses their own car based on the cost to the employer.
Where the employer pays for a charge card to allow the employee to charge their car
- – No benefit where it is a company car.
- – The taxable benefit is based on cost when the car is the employee’s own.
Leasing an electric car through a Limited Company – Can I reclaim VAT?
The company can reclaim 50% of the VAT on the monthly lease payments. We cover this in a separate article here.
Check or update your company car tax
Tell HM Revenue and Customs (HMRC) if your car or fuel details change. You can check or update your company car tax online, for example, if:
- – you get a company car or give one back
- – your employer starts or stops paying for fuel for you to use personally
If a change affects the value of the car, HMRC will update your tax code so you pay the right tax.
Estimating the tax you’ll pay
You can see how much tax you might pay with HMRC’s company car and fuel benefit calculator.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you need any assistance with your company’s annual P11D returns, preparation and submission of your business accounts or submission of self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.