Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! What has day 13 of advent got in store? How you can save the planet and save tax with electric cars, that’s what.
For the owner managed company, it has long been the advice that the most tax efficient way of getting cash out of the company is to pay a salary up to the NICs threshold and then supplement income with dividends out of the taxed profits of the company. This holds true even with the introduction of the dividend tax in April 2016.
Having the company provide you with benefits in kind, such as private medical insurance and company cars, did not lead to any advantage. In fact, you would be worse off. Until now, that is.
In recent years, the company car tax regime has been of a punitive nature. The amount that you are taxed on is calculated as the list price multiplied by a % determined by the car’s CO2 emissions figure. The percentages in the 2018/19 tax year range from 13% for a fully electric car up to 37% for diesel gas-guzzler.
But every now and then, the government throws a curve ball that challenges the conventional wisdom. It’s our job to advise you on how you can hit that curve ball out of the park and through HMRC’s upstairs window. From April 2020, the percentage for a fully electric car will drop to 0%. Yes, that’s right, if you buy an electric car through your company next year then there is no taxable benefit in kind.
It gets even better. Electric cars qualify for 100% capital allowances so you are effectively getting a 19% discount on the cost price of the car. And you’ll be helping to save the planet; what’s not to like?
The percentage is rising to 1% from April 2021 and to 2% from April 2022 but these are still exceptionally low and the corporation tax upside more than covers the benefit in kind downside.
Nobody knows what the rates will be from April 2023, but for the time being you should seriously consider going electric. A bit like Bob Dylan did in 1965 but without the booing and jeering.
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