In recent years, Electric Vehicles (EVs) have developed as an eco-friendly and economically savvy choice for businesses. The implementation of EVs has grown significant momentum, driven by ecological concerns, government initiatives, and technological developments. If you’re a limited company based in the UK, it’s crucial to understand the remarkable tax benefits associated with embracing electric vehicles. In this comprehensive guide, we’ll delve into the key tax reliefs available to limited companies, making a strong case for why you should consider integrating EVs into your fleet.
The Evolution of Company Car Tax Rates
The turning point for EVs in the United Kingdom came in April 2020 when new company car tax rates were introduced. These changes had a profound impact, with company car tax on fully electric vehicles dropping from 16% to an astounding 0%. Although it has risen to 2% in recent times, these rates remain remarkably low, making EVs an attractive choice for businesses.
The implications are substantial. Limited Companies can now provide EVs to employees at a significantly reduced cost compared to traditional petrol or diesel cars. This not only benefits your workforce but also strengthens your company’s financial health. Moreover, by opting for EVs, you’re actively contributing to environmental objectives by reducing your corporate fleet’s carbon footprint.
The Impact of Tax Incentives
The UK government’s assurance of achieving a “net zero” target for greenhouse gases by 2050 highlights the urgency of reducing emissions across all sectors. The transportation industry, as the highest emitter in the UK, is a central focus in accomplishing this goal.
To encourage the adoption of EVs and reduce fossil fuel-driven miles, the government has introduced enticing tax incentives for corporate fleets. These incentives align with your financial goals and environmental responsibilities, making the transition to EVs an even more compelling choice.
Key Tax Reliefs for Limited Companies Considering EVs
Capital Allowances: Limited companies can claim a generous First-Year Allowance of 100% against their corporation tax bill when purchasing brand-new fully electric cars, whether through outright purchase or hire purchase agreements.
Corporation Tax and Lease Payments: Leasing EVs offers another avenue for tax savings, as monthly rentals become expenses on the profit and loss account, effectively reducing profit and corporation tax.
Corporation Tax and Hire Purchase: Opting for a Hire Purchase (HP) agreement not only grants you the 100% first-year allowance but also provides savings on monthly interest payments.
VAT Reclamation: To reclaim VAT on the purchase price of an EV, it must be used for business purposes exclusively. In the case of leasing, limited companies can still reclaim 50% of the VAT from lease payments.
Benefit-in-Kind (BIK) Tax: When personal usage of a company car occurs, BIK tax applies. For fully electric cars, the BIK rate is a mere 2% of the vehicle’s list price, a significant reduction compared to conventional vehicles.
Electricity Expense: Charging company cars for business use doesn’t count as a benefit in kind. It’s fully tax-deductible for your company, promoting further savings.
Grants: The government offers a range of grants, including the Plug-In Car Grant, which provides discounts on EVs costing up to £32,000.
Embracing electric vehicles offers substantial financial advantages for limited companies while aligning with the imperative to reduce greenhouse gas emissions. As the UK continues to prioritize sustainability and emission reduction, integrating EVs into your corporate fleet is not only a prudent financial move but also a step towards a greener, more sustainable future.
Need more Help?
Looking for trusted local chartered accountants and tax advisors in Putney, Southwest London? Look no further than Lanop Business and Tax Advisors. We are your dedicated XERO accounting advisers and reliable business advisors, serving the Wandsworth Borough and beyond. While our offices are in Southwest London and Central London, our services extend throughout the UK. Our team is currently working remotely, using Zoom accounts to assist clients from all corners of the country. At Lanop Accountants, we specialize in providing top-notch financial solutions for small and medium businesses. Whether you’re in Putney, Wandsworth, Kingston, Hammersmith, Richmond, Wimbledon, Southwest London, or anywhere else in the UK, we’re here to help you with all your accounting and tax needs. Don’t hesitate to get in touch with us anytime for expert guidance and support.