The tax regime for cars is designed to encourage the use of low emission vehicles and new rates have recently come into force for the current tax year.
A diesel, petrol or hybrid company car is taxed as a benefit in kind and for the 21-22 tax year, depending on its CO2 emissions, the tax rate will be between 1% & 37% on the list price of the car. An electric company car is taxed at a rate of 1% going up to 2% from 6 April 2022 until the 5th April 2025.
For businesses, a pure zero emission electric car can qualify for a 100% first year allowance when purchased new and unused, with this also now applying to zero emission vans. Commercial vehicles already qualified for 100% relief if falling within the Annual Investment Allowance.
Cars with CO2 emissions not exceeding 50g/km will be added to the main pool for capital allowances purposes so attracting an 18% writing down allowance (WDA). Cars with emissions over 50g/km must be allocated to the special pool rate where the WDA is 6%.
Companies can also benefit from the new super deduction offering 130% first year allowance on qualifying electric charging points for cars and vans where the charging point is used by their own business. (This is time restricted to 31 March 2023).
Vehicle Excise Duty (VED) rates for pure electric vehicles have been reduced to £nil until at least 2025 with reduced rates for Plugin hybrid electric vehicles (PHEVS).
Under existing Law, an electric vehicle will be viewed as a car for VAT purposes and therefore VAT is unlikely to be recoverable on purchase unless only available and used for business purposes. Similarly the existing VAT rules also apply for leasing purposes.
Please contact Carla Hobby on 01202 715950 if you want advice on the tax treatment of electric vehicles.
This article is featured in the June edition of the Dorset Business Focus magazine. Read on the online version here.