Electric car sweet spot

The way in which company car benefits are calculated is changing from April 2020 as we explained in our newsletter on 19 September 2020. There will be two parallel car benefit tables for cars registered before 6 April 2020 and those registered on or after that date.

However, the position for purely electric cars is slightly different. From 6 April 2020 the taxable benefit for all electric cars will be reduced to zero, irrespective of when the car was registered.

In 2019/20 the taxable benefit for an electric car is 16% of list price, so drivers of electric cars will be delighted that their taxable benefit for 2020/21 will be zero! This won’t last, as in 2021/22 the taxable benefit will rise to 1% of list price, then 2% of list price in 2022/23. This assumes that this tax policy will remain in place under the new government following the general election next month.

If you want to take advantage of these low company car benefit rates and acquire an electric car through your company, we recommend you wait until April 2020 to make that purchase. The 100% first year allowance for new cars with CO2 emissions of no more than 50g/km is available for purchases made before 1 April 2021 (6 April for income tax).

This means there is a sweet spot in 2020/21 where the company gets 100% capital allowance on the purchase of an electric car and the employee has a zero taxable benefit for using the car.

Written by the Tax Advice Network