Electric cars were not Tax efficient but they will be!

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

However, it’s become apparent that the Government were gradually making them less tax efficient year-on-year as we drivers started to give up petrol and diesel cars.  Gordon Brown’s ‘go green’ movement seemed to hit a brick wall when the realities of the drop in tax revenues became clear.  The benefit-in-kind taxable percentages have risen from 5% in 2015/16; to 7% in 2016/17; to 9% in 2017/18; to 13% in 2018/19 and are now 16% in 2019/20.  So, in 2019/20, a director/employee will be paying tax (and also employer’s national insurance) on 16% of the list price of the electric car – 3 times what it was for 2015/16.  Together with the fall in Corporation Tax (which meant less tax relief on their initial purchase), electric cars are no longer looking so tax efficient.

However, there is good news.  After 5 years of increases in taxable benefit, from 2020/21 the benefit in kind percentage will drop to 2% – making them very tax efficient again.  I don’t understand the logic for this rise and fall in the percentages.  But, it is still great news for the electric car industry, and for any business owner looking to have an electric car.