For the first time, more companies are realising the electric car benefits for business purposes and are adopting an electric fleet of vehicles.
With electric car and vehicle technology improving and more choice, electric vehicles are an increasingly beneficial option for drivers. As a business owner, it could make financial sense, as well as being a positive move for the environment to run an electric vehicle. Not only are there tax benefits of electric cars but also running and servicing cost reductions that can be achieved.
Capital allowances benefits for electric vehicles
If an electric vehicle is outright purchased or Hire Purchased a business can claim the full cost of a zero-emission (0g/km) electric vehicle, in the form of a 100% first year allowance (FYA), against the profits of the year of purchase.
There are no restrictions on the value of the vehicle. However, the car must be purchased new and unused.
Under current law, an electric vehicle will still be viewed as a car for VAT purposes. Therefore, VAT is not recoverable on purchase, unless it can be demonstrated that the car is only available and used solely for business purposes.
Leasing of an electric vehicle
If the business opts to lease the vehicle instead, this will also benefit from a 100% deduction of the leasing costs incurred each year against profits.
The same VAT recovery rules also apply for leasing purposes with 50% VAT recovery on the leasing charge available. Where the vehicle is used solely for business purposes (no private usage) full VAT recovery is available.
Benefit In Kind – Electric vehicle
Benefit in Kind (BIK) tax rules for electric vehicles EVs in the UK are significantly favourable compared to petrol or diesel vehicles. The BIK tax is determined as a percentage of the vehicle’s value. These rates are set by HMRC to encourage the adoption of EVs in the UK.
The current Benefit In Kind (BIK) rate in the UK is 2% for electric vehicles, increasing gradually by 1% a year to reach a cap of 5% in 2027/2028. To put into context a typical diesel family hatchback would taxed today at about 30%.