Company cars usually come with a hefty benefit in kind charge which can often mean that they are not very tax efficient. However, since the company car tax was reformed in April 2020 to an emissions-based system, switching to an electric vehicle is now an attractive proposition.
Electric company cars
Electric cars are exempt from vehicle and excise duty, yet they are subject to benefit in kind tax if they are to be run as a company car.
Company cars are categorised into a series of benefit in kind bands, based on the vehicle’s fuel or energy type, CO2 rating and the list price (including optional extras, VAT and delivery charges).
The taxable benefit in kind value for a company car is based upon:
- The manufacturer’s list price + the cost of optional extras x by a factor expressed as a percentage and usually determined by the car’s CO2 emissions;
- For electric cars only, that factor for the 2021/22 tax year, is 1%; and
- For the tax years 2022/23 to 2024/25 the factor is 2%.
Zero emissions cars purchased before 31 March 2025 (companies) or 5 April 2025 (non-corporate businesses) will qualify for 100% first year capital allowances.
- To qualify for 100% first year allowances, the car must be unused and not second hand;
- An electric company car acquired second hand would qualify for capital allowances in the main pool with an 18% writing down allowance;
- The company will also be able to claim capital allowances on the cost of installing a charge point at the employee’s home as well as at the business premises; and
- For expenditure incurred between 1 April 2021 and 31 March 2023 on plant and machinery, including electric vehicle charge points and vans (but not electric cars), companies will qualify for a 130% first year relief in the form of the capital allowances super-deduction.
Electric company vans
Until recently, the taxable benefit in kind for electric company vans was not as favourable as for electric company cars.
For the 2020/21 tax year, the taxable benefit for an electric company van used privately was a flat rate of £2,792, being 80% of the full rate for a non-electric van.
- There has been a big change for the 2021/22 tax year onwards with the taxable benefit for a zero-emission company van being reduced to nil; and
- This compares with a flat rate benefit in kind for a non-electric or hybrid company van of £3,500 for the 2021/22 tax year which is due to be increased in line with CPI in subsequent years.
- For expenditure incurred between 1 April 2021 and 31 March 2023 on a zero emissions van (and indeed on a non-electric van), companies will qualify for the 130% first year capital allowances super-deduction; and
- The nil taxable benefit in kind along with the 130% capital allowances super deduction will make the zero emissions company van an attractive option as the range of vehicles on the market increases.
Download our Tax and Electric Vehicles factsheet below, including further details on the applicable percentages for hybrid cars and information on tax and electric charging points.