For many years the number of company cars provided has declined as its status as a perk has dwindled. Whilst there are many factors to this including cheaper personal finance contract purchase deals and perhaps increased reliability, the main factor nevertheless has been the increasing benefit in kind taxation of both petrol and diesel cars. The company car tax applied to petrol and diesel cars has increased dramatically with annual increases in the scale charge based on CO2 emissions and also due to the way CO2 emissions are now measured becoming more stringent. The resultant tax and national insurance costs on a conventionally fuelled petrol or diesel company car have become, in the main, not cost effective.
In the meantime, technology in the car industry has developed with the widespread introduction in recent years of electric cars. With some of the attractive tax incentives introduced for the employee driving an electric car, such as the benefit in kind percentage of just 2% for a fully electric car in 2022/23 (and this rate is frozen until at least 2025), applied to the list price of the car, the provision of such a car has now become much more attractive.
For example, if we take the provision of say a fully electric Tesla with a list price of £110,000, with the percentage charged being 2%, this results in an annual taxable benefit in kind of £2,200. For a basic rate tax payer this equates to £440 and for a higher rate tax payer this equates to £880 of income tax payable. For many employees this modest annual tax cost is worthwhile to secure the provision of such a car.
There is some corresponding employer national insurance costs to consider on the benefit but taking the above example, for 2022/23 this would equate to £331 but of course this is tax relievable for the company.
In addition, the employer is able to secure first year capital allowances when purchasing electric cars. This relief will extend to March 2025 and basically means an immediate tax write off for the company in the year of purchase. Using the example above on a car costing £110,000, the company would secure corporation tax relief on the full cost (currently at the rate of 19%), of £20,900, in the year of purchase.
Please note these enhanced capital allowances only apply to outright or hire purchase not leasing costs.
Certainly such favourable tax regimes are fuelling demand coupled with opting for more environmentally friendly travel.
If the provision of such a benefit is of interest please do not hesitate to contact the Bromhead team to discuss further.