Since April 2020 there has been a massive reduction in the car benefit rates for Ultra Low Emissions Vehicles (“ULEV”). These are cars with CO2 emissions of <50g/km.
For example a BMW i3 (a fully electric car), with a list price of £33,340 and CO2 emission of 0g/km, you would have the following taxable benefit:
| YEAR | BIK RATE | TAXABLE BENEFIT (LIST PRICE X BIK RATE) | TAX FOR HIGHER RATE TAX PAYER |
| 2019/20 | 16% | £5,334 | £2,134 |
| 2020/21 | 0% | £nil | £nil |
| 2021/22 | 1% | £333 | £133 |
| 2022/23 | 2% | £667 | £267 |
The Chancellor confirmed the 2% BIK rate on a fully electric car will be in place for the 2023/24 and 2024/25 tax year too.
What are the other advantages of having a ULEV company car?
- Enhances Capital Allowances (ECAs) for ULEV company cars
If you are buying a brand new car outright or on hire purchase you could normally only claim capital allowances at 8% per year on the cost of a company car. However 100% ECAs can be claimed on the cost of a ULEV between 1 April 2020 and 31 March 2021, meaning the entire cost of the car can be deducted from company profits before corporation tax is payable.
For the example above, purchasing the BMW i3 at £33,340, would save corporation tax of £6,335.
WARNING: From 1 April 2021 the enhanced ECAs only apply to fully electric vehicles (EVs). Therefore cars with any CO2 emissions will go back to only getting the tax relief at 8% per year.
- Car leases can be attractive
If instead you choose to lease the car you can offset the cost of the lease and claim 50% of the VAT back (if you are VAT registered) within your limited company.
- Grants are available
There are Government grants of up to £4,500 for most new cars with CO2 emission <50g/km (assuming a range of 70+miles) The grant is applied to the purchase price by the dealer. There are grants available of up to £500 for a home charging point and £300 for a workplace charging point.
- Zero road tax and Congestion Charge
ULEVS qualify for zero road tax and are exempt from the London Congestion Charge.
- Expanding range of qualifying cars
These range from a Tesla or a BMW 18 to Audi E-tron Quattro or a VW e-Golf.
I’m interested, what should I do between now and April 2021?
If you are mainly interested in buying a ULEV rather than an EV then make that purchase before 1 April 2021 to ensure you qualify for the 100 FYA. If you are happy going all out electric then timing the purchase before your company’s year end rather than just after is a good idea to not delay the tax relief!
Once you have been car shopping and short-listed the cars and the deals that you are interested in, get in touch with us and we can let you know the corporation tax savings and the car benefit implications for your options.
JLA Accounting Limited takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss for anyone acting from or refraining from acting as a result of this information can be accepted by JLA Accounting Limited.
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