Kupesh Patel
EV ownership might seem a costly proposition but costs can be reduced to become quite compelling, says Kupesh Patel, partner at accountants Elsby & Co
It is no secret; sales of electric cars are booming. It is also no secret that I am something of a petrol head. I begrudgingly made the move from petrol to electric last year but I am nothing but delighted with the choice I made.
Aside from the environmental benefits, a big factor for me – and I suspect many electric vehicle owners – was the cost of ownership. As EVs become ever more accessible, the government is encouraging the switch by making it rather attractive from a tax position, particularly so if you work for a company that is prepared to help you navigate to the most tax-efficient solution.
Company cars are taxed through a Benefit in Kind rate. In 2019 the government announced a zero per cent BIK rate for EVs, effective for the 20/21 tax year, rising to 1pc in 21/22 and 2pc in 22/23. This sounds low but it is only when you compare it against a petrol or diesel sibling that you realise how much of a difference this can make.
A diesel or petrol engine car can have a BIK rate of up to 37pc, with 25pc seemingly around average for a ‘normal’ family saloon. On a £30,000 list price for a new car, the taxable benefit on the EV would work out at £600 (in 2022/23) versus a 25pc BIK rate which would have a taxable benefit of £7,500 per annum. Quite a difference.
The BIK rate only tells you half the story. If you work for a company that is prepared to assist you or if you have your own company, there are many ways to reduce the cost of ownership of your EV.
Owning or leasing a car through the business can further reduce the tax burden. There are opportunities to reduce personal tax and National Insurance through salary sacrifice. The business can reclaim VAT and qualify for relief against company profits through capital allowances, with any finance costs also deductible against company profits.
If you are a director of the business, there are options in how you are paid and the BIK can fall within your tax-free personal allowances. There are also opportunities to expense some of the initial and day-to-day costs such as home charging points, insurance, and servicing and repairs through the company.
If you are a shareholder and take your remuneration via dividends, the tax savings are even more attractive.
In short there are many considerations which can make for a cost-effective ownership proposition. I am fortunate that as an accountant, it is my business to know these things and I am pleased that I have found a solution for myself, my team and many clients of Elsby and Co.
If you are thinking of making the change and would like to discuss the options available to you, we would be delighted to help.