From 6th April company car owners will no longer have a benefit-in-kind on fully-electric vehicles, which is likely to make company cars far more appealing to motorists throughout 2020.
The benefit-in-kind on these cars at the moment is 16% of the list price, however this rate will drop from the 6th April 2020 to 0%. It will then only be 1% and 2% respectively for the two tax years following.
Tesla Model S
Take the Tesla S for example, a five door all-electric car, with an EPA range of 373 miles making it the second most-sold electric car in history.
The taxable benefit would come to £12,800 with the current benefit-in-kind rate of 16%. This would mean a higher rate tax payer (45%) would have to pay £5,760 in tax for that year. In addition to that, the company would have to pay Class 1A national insurance of £1,766.
Under the new rate of 0%, the taxable benefit would be nothing, meaning a higher-rate tax payer would have no tax or national insurance to pay for the year.
With the rate of 1% in 2021/2022, there would only be £360 to pay in tax, and £720 the year after with the rate at 2%.
The company would also benefit from the new rates, as they will get full tax relief on the capital cost of the car, regardless of whether it was acquired through contract purchase or not. This means that at 19%, the ‘real’ cost to the company would be reduced to £64,800, down £15,200 on its current list price of £80,000.
When looking at the example above, shareholders who are looking to purchase an electric car would benefit in putting the putting the investment through the company. They would have to pay next to no tax in respect of benefit-in-kind and the company itself can enjoy full tax relief on the cost of the car. Tax efficient opportunities may also arise for personally held cars to be transferred to a company.
It is believed the new tax rules could see a swing back to company cars, although there will always be the threat of advances in technology making today’s model obsolete.
If you’d like some advice on company cars and the impact they could have on your business, call us on 01254 583515 or fill out the form below.