Tax rules on Electric cars from April 2021 are changing.
For 2020/21, it had been possible to enjoy an electric company car as a tax-free benefit. While this may not be the case for 2021/22, electric and low emission cars remain a tax-efficient benefit.
Taxation of electric cars
Under the current tax law, a taxable benefit arises in respect of the private use of that car. The taxable amount (the debt instrument value) is that the ‘appropriate percentage’ of the list price of the car and optional accessories, after deducting any capital contribution made up to a maximum of £5,000. The amount is proportionately reduced if the car was not available during the whole the tax year and is further reduced by any amount that was paid for personal use.
The appropriate percentage
The appropriate percentage depends on the level of the car’s CO2 emissions. For zero emission cars, no matter whether the car was first registered on or after 6 April 2020 or before that date, the appropriate percentage for electric cars is 1% for 2021/22. For 2020/21 it was set at 0%.
So, in facts the same car cost you for tax year 20/21 nothing no benefit tax to pay nor the company needs to pay class 1A. Whereas in 21/22 the same car will have a benefit in kind to pay of 1% and class 1A of 13.8% for the company to pay. E.g. car cost £50,000 you will end up paying tax of £500 taxed at say 20% or 40% if you are higher rate taxpayer ie £200 and the company will pay £69 for class 1A. This means that the tax cost of an electric company car, as illustrated by the following example, remains still low in 2021/22. For 2022/23 the appropriate percentage will increase to 2%.
Low emission cars
If an electric car is not for you, it is still possible to have a tax efficient company car by choosing a low emission model.
The way in which CO2 emissions are measured changed from 6 April 2020. For 2020/21 and 2021/22, the appropriate percentage also depends on the date on which the car was first registered as well as its CO2 emissions. For low emission cars within the 1—50g/km band, there is a further factor to consider – the car’s electric range (or zero emission mileage). This is the distance that the car can travel on a single charge.
The following table shows the appropriate percentages applying for low emission cars for 2021/22.
|Appropriate percentage for 2021/22 for cars with CO2 emissions of 1—50g/km|
|Electric range||Cars first registered before 6 April 2020||Cars first registered on or after 6 April 2020|
|More than 130 miles||2%||1%|
|30 – 39 miles||12%||11%|
|Less than 30 miles||14%||13%|
As seen from the table, choosing a car with a good electric range can dramatically reduce the tax charge. Assuming a list price of £50,000, the taxable amount for a car first registered on or after 6 April 2020 with an electric range of at least 130 miles is £500 (£50,000 @ 1%); by contrast, the taxable amount for a car with the same list price first registered before 6 April 2020 with an electric range of less than 30 miles is £7,000 (£50,000 @ 14%).