Will changes to the UK company car tax system spark more interest in electric cars?

20 August 2019

Changes to the UK’s company car tax system will mean drivers choosing a pure electric car pay no benefit-in-kind charges from next year, but will this be enough to see more electric cars on the roads?

From April 2020, there will be no tax on a company car, if it is electric, or a hybrid, if it can travel 130 miles on a charge and emits emissions of less than 51 g/km.

The saving will benefit the company as the business will not have to pay Class 1A National Insurance.

While the zero rate only applies up to 5 April 2021, the Treasury have already set the rates that will apply in the following two years:

  • 2021/2022 – 2% and hybrid cars must be capable of 150 miles
  • 2022/2023 – 3% and hybrid cars must be capable of 150 miles

However, tax benefits to one side, there are still many practical considerations with electric and hybrid cars. Currently hybrid cars have a limited range in electric mode. Purely electric cars also have the limitation that you need to plan your route around charging points and they need to be working and available when you turn up, so you don’t run out of power.

In addition to this, you need to consider your employees personal situations. They may not live in a location that enables them to charge their car overnight, and have you considered making charging points available at your place of work for your staff and customers.

The company car is very much brushed over in planning conversations with clients now due to the tax bill it creates. Many who still have a company car may not understand the true cost to both them and the business or are very likely to be continuing due to the convenience of it.

On the face of it, the practicalities faced by car owners and businesses could be seen to still outweigh the tax savings. The shift in mind-set and change of habits is not an easy task when many would argue the technology is still not where it needs to be for them to make the change.

Whilst this is a good move from the treasury, it is likely a lot more will need to follow, to make this a sustainable option for business and car owners in the future.

If you are considering the benefits you provide your team and the most tax efficient option for both your business and the individuals, our tax team can explain the options available to you. For more information, contact Jennie Brown on 01295 250401 or email jbrown@ellacotts.co.uk