The future is electric

​In order to help achieve its CO2 emissions targets, the UK Government is incentivising businesses and employees to switch to electric vehicles, with attractive tax savings and incentives.

Whether leasing or buying, businesses and their employees can make significant tax savings if they move to greener transportation.

In 2020, electric vehicles were allocated a zero rating for Benefits in Kind. This rate however moved to 1% in 2021/22 and will be 2% in 2022/23. As well as fully electric vehicles, the Benefit in Kind reduced rate also applies to certain hybrid vehicles.

Importantly for business owners and employees, electric vehicles are now eligible to be part of the salary sacrifice scheme. This means that employees can pay for their lease/vehicle payment before tax is deducted from their salary.

Example savings:

Car lease cost £570 inc. VAT
Employee tax saving (higher rate) -£246
Average benefit in kind £27

Total deduction to employee £351

In this example, the employee is only paying £351 for a car which has a monthly lease cost of £570.

There are also capital allowance savings for businesses who purchase electric vehicles. Cars with zero CO2 emissions are eligible for 100% Annual Investment Allowance, and an employer installing charging equipment can also claim 100% of the cost as a tax deduction.

It should also be remembered that fully electric cars incur zero Vehicle Excise Duty (car tax). Furthermore, residents in Scotland have access to two grants if they wish to install a home charge point, which can cover the full installation cost.

With the sale of petrol and diesel cars due to be banned by 2030 by the UK government, it looks likely that more and more businesses will take advantage of the tax incentives and move towards cheaper and more environmentally friendly company vehicles.