Company cars are very popular among employees as they are viewed as a big perk of the job, but the costs of having such a benefit can be high. However, the range of tax incentives, government grants and exemptions offered with electric cars mean the financial benefits of going electric with your company car soon add up.
The Tesla Model 3 is a car currently costing just over £43,000, and it reached new heights of popularity in the UK for the months of April, May, and December last year.
One of the main reasons for the Tesla’s top-selling record is to do with tax. Those who chose a zero-emission company car like the electric Tesla for 2020/21 didn’t have to pay any company car tax. A car of the same value, such as the BMW 3 series, would have cost up to £5,200 in tax for a higher rate taxpayer, a lump sum that is undesirable to most.
From 6th April 2021, both new and existing Tesla cars have been eligible for a 1% ‘Benefit In Kind’ (BIK) rate for the 2021/22-tax year. A BIK is essentially a tax applied to the benefits or perks an employee receives from an employer.
Even though the BIK rate will rise to 2% in 2022/23, it is being held at that rate for both 2023/24 & 2024/25 and this compares to a BIK rate of 20-27% for the average petrol or diesel vehicle. Therefore, a car with 1% BIK is very cost-effective for employees.
In addition to this, there are fuelling benefits to going electric as if an employee uses a company car, no BIK occurs when charging their vehicle at the workplace – even where there is private use of the car. This is because electricity is not classed as a road fuel and so the car fuel benefit charge does not apply to electric charging.
As an example, in 2020/21 if the BMW 3 series were fuelled by the employer, there would be up to an additional £2,940 tax to pay for a higher rate taxpayer, so they would most likely be advised to pay for their own petrol.
Better than petrol and diesel?
A further benefit to electric cars is the lower running costs and with a lot less moving parts, services and repairs are significantly lower than what you would typically spend on a petrol or diesel vehicle. Additionally, petrol and diesel car prices are on the rise.
It has recently been proposed by The Department For Transport that petrol and diesel cars could be up to £1,500 more expensive to purchase under a new “feebate” scheme created to boost the take-up of electric cars. This has not been finalised yet but is worth keeping on your radar if you are due a company car change.
If a company car change is fast approaching, be sure to consider the electric option as a viable solution to cutting even more of the costs associated with this popular employee benefit.
KLO Financial Services
If you want to learn more about tax savings, we can help. Our tax planners and financial advisers will work with you for many years, ensuring that they truly understand you and your financial needs in order to provide financial solutions that keep you financially comfortable.