During the current 2020/21 tax year, electric company cars are a tax-free benefit.
This will no longer be the case for 2021/22, but electric and low emission cars remain a very tax-efficient benefit.
So how are electric cars taxed?
Electric cars are dealt with under the company car benefit-in-kind tax rules, where a taxable benefit arises in respect of the private use of that car.
The taxable amount is the ‘appropriate percentage’ of the list price of the car and optional accessories, after deducting any capital contribution made by the employee up to a maximum of £5,000. The amount is proportionately reduced where the car is not available throughout the tax year, and is further reduced to reflect any contributions required for private use.
The appropriate percentage
The appropriate percentage depends on the level of the car’s CO2 emissions. For zero emission cars, the appropriate percentage for electric cars is 1% for 2021/22. For 2020/21 it was set at 0%. For 2022/23 the appropriate percentage will increase to 2%.
This means that the tax cost of an electric company car, remains low in 2021/22.
An example would be where an individual has an electric company car with a list price of £30,000. For 2020/21, the appropriate percentage for an electric car was 0%, meaning that there was no benefit-in-kind. For 2021/22, the appropriate percentage is 1%. Consequently, the taxable amount is £300 (1% of £30,000).
For a higher rate taxpayer, they will only pay tax of £120 on the benefit of the company car. If they are a basic rate taxpayer, they will pay £60 in tax. His employer will also pay Class 1A National Insurance of £41.40 (£300 @ 13.8%).
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Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
