Providing a company car to your employees is a coveted benefit-in-kind (BIK), although the incentives to go fully electric are impossible to ignore.
They help reduce carbon emissions, the infrastructure is constantly improving, and they are significantly cheaper to run.
According to comparethemarket.com, electric cars cost £1,091 a year in running costs, compared to £2,062 for their petrol counterparts.
It's also far cheaper to reimburse employees for business-related journeys in an electric vehicle when the current fuel-only mileage rate is 4p per mile.
Then we come to the Government incentives and the way zero-emissions vehicles are treated from a tax perspective.
Both appeal to those who are considering making the switch towards an electric fleet of vehicles in their business sometime soon. Here's why.
Plug-in car grant
The plug-in car grant is currently worth £2,500 on electric vehicles worth up to £35,000 in 2021/22. This scheme is open until 5 April 2023.
This grant provides a discount on the price of a wide range of brand new low-emissions vehicles, including cars, vans, trucks, and more.
The Government gives the grant to vehicle dealerships or manufacturers, who deduct the value of the grant from the purchase price.
Not all low-emission vehicles will get a grant. Only vehicles that have been approved by the Government are eligible.
Workplace charging scheme
To help with the installation of electric charging infrastructure within a business, the workplace charging scheme is available.
This scheme provides support to eligible organisations with the upfront costs of buying and installing electric vehicle charging points.
The amount of support available to qualifying businesses, charities, and public-sector organisations is worth up to:
- 75% of purchase and installation costs
- a maximum of £350 for each socket
- a maximum of 40 across all sites for each applicant.
Tax treatment
Employees who receive a company car are assessed and liable to pay income tax on the BIK at their marginal rate.
Employers who provide company cars are assessed for Class 1A National Insurance contributions on the BIK's value.
The company car's list price, its CO² emissions, and electric range then help determine the tax liabilities for both the employer and their staff.
Generally speaking, the greater the electric range and lower the CO² emissions, the lower the tax bill.
Potential tax savings
Rob is a higher-rate taxpayer who has a diesel company car with a list price of £40,000 for all of 2021/22.
As the car has CO² emissions of 198g/km, it is liable for the maximum BIK percentage of 37% which attracts a BIK charge of £14,800.
That results in Rob receiving an income tax bill of £5,920 and his employer getting a Class 1A NICs liability of £2,042.40.
If Rob's company car was a zero-emissions vehicle, the BIK percentage would be 1% and the BIK charge would be £400.
Rob's tax charge on the BIK would be £160 and his employer's Class 1A NICs would be £55.20.
Talk to us about the benefits of providing electric cars.