Benefit In Kind Tax Exemption - Electric Vehicles25/Nov/2019
In what is a rare piece of good news for company car drivers and in a measure designed to encourage the uptake of environmentally-friendly fleet vehicles, the Treasury has announced that from 6 April 2020 electric company cars will be exempt from company car tax for the duration of that tax year. This will then increase to 1% from 6 April 2021 and 2% from April 2022.
It is important to note at this point that the exemption will apply only to entirely electric engines - whilst there are currently no ‘hybrid’ vehicles that have been authorised by the government as applicable to this exemption, there will be reductions in benefit in kind (BIK) tax for drivers of hybrid vehicles from 16% to as little as 2% for a vehicle with electric capability exceeding 130 miles.
The move clearly implies a recommendation for businesses who currently have a fleet of company vehicles to review the position given the implied benefit to their employees – recent years have seen the government increase rates of BIK taxation for drivers of petrol or diesel vehicles to discourage company vehicles that are seen as damaging to the environment.
However those with the option or inclination to switch could recognise significant savings by switching from a petrol or diesel vehicle to an electric one – for example a driver of a diesel car with 119g/km emissions would see their rate drop from 28% to 0% if they changed to a compliant purely electric vehicle.
There are also opportunities presented to businesses not currently offering company vehicles as an alternative provision of benefits to employees that historically found the increasing tax burden attached to petrol/diesel vehicles prohibitive.
This is in addition to generous corporation tax benefits that already exist via the capital allowance mechanism, with electric vehicles currently enjoying first year allowances and therefore the deduction of the cost of the vehicle from its taxable profits in full.
To discuss how this could impact you and your business please get in touch.