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Do accountants dream of electric cars? Electric cars - Tax efficient? They were; they aren’t so much; but they will be!

6th October 2017

For the last couple of years, I have been saying how tax efficient electric cars for Company owners – 100% write-off against profits in the year of purchase, and low benefits-in-kind on the director/employee.

 Then it became apparent that the Government were making them less tax efficient year-on-year as more of us started to give up petrol and diesel cars.  The encouragement to ‘go green’ started by Gordon Brown seemed to have hit a brick wall when the realities of the drop in tax revenues became clear.  The taxable benefit-in-kind percentages have steadily risen from 5% a couple of years ago; to 7% in 2016/17; to 9% in 2017/18; rising to 13% in 2018/19 and 16% in 2019/20.  So, come 2018/19, a director/employee would be paying tax (and employer’s national insurance) on 16% of the list price of the electric car – over three times what it was for 2015/16.  Together with the fall in Corporation Tax (meaning less tax relief on their initial purchase), electric cars were no longer looking so wonderfully tax efficient.  

However, there is good news.  Strangely, after 5 years of increases in the taxable benefit in kind on electric cars, from 2020/21, the benefit in kind percentage tumbles down to 2% - making electric cars extremely tax efficient again.  I, personally, do not understand the logic for the rise and fall in the percentages – but then when has tax ever been logical?  I also don’t see why we have to wait 3 years for the drop to 2% if a decision has been made that 2% is the right rate (and I’m sure neither do manufacturers of electric cars who may see canny business owners putting off the purchase of an electric car until the 2% rate arrives).   But, it is still great news for the electric car industry, and for any business owner looking to have an electric car.