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By far the company purchase of an electric vehicle is currently one of the biggest employee incentives and we have been inundated with queries following our budget newsletter earlier this year.

As mentioned in our newsletter, the purchase of an electric car via a company is fully tax deductible and under the car salary sacrifice scheme the benefit in kind (BIK) rate for 2020/21 is 0% – the normal rules on salary sacrifice on company cars do no not apply to electric cars. 

To recap, the benefit of electric cars:

  1. All costs related to the purchase or lease of the electric vehicle attract full corporation tax relief. 
  2. The benefit in kind rate for 2020/2021 is 0% which increases to 1% in 2021/2022 and 2% in 2022/2023.
  3. The BIK rate applies to all costs related to the vehicle, such as insurance and charging points installed at home or at the office.   
  4. The employee can agree for their employer to sacrifice their salary in return for the company buying them a car, which means their PAYE income will reduce and less income will be subject to income tax.
  5. The employer will save on the employer NI contributions of 13.8%.
  6. The company can also claim 50% VAT back on contract hire costs as well as 100% VAT back on any maintenance costs.

Our view 

This employee incentive is one that cannot be ignored.  Employee and employer savings can be made for businesses who have a significant number of employees and for those individuals who trade via a personal service company. For those directors with personal service companies acquiring the car for themselves, not only will they be able to mitigate their corporation tax liability but will also be in a better financial position as the car is not paid from their net salary or dividends.

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