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With the rise in the cost of diesel and petrol, many people are thinking about electric cars. If you are self-employed, it may be worth considering putting an electric vehicle through your business regardless of whether you are a sole trader or limited company. This article will focus on limited companies.

An Electric Vehicle (EV) is by far the most tax-efficient company car around.

There are two parts to company car tax. Firstly, what the employees (including Directors) pay in tax. Secondly, what the company pays in tax.

Employees are taxed on the CO2 emissions and the P11d value of the car, at the income tax bracket they are in e.g. 20%/40%.

Company’s are taxed through National Insurance at 13.8% on the CO2 emissions and the p11D value of the car. The p11D value includes VAT, options, and delivery fee.

Zero emission cars attract a benefit in kind (BIK) of 2% in the 2022/23 tax year.

There is also the added benefit of deducting the cost of the car or the monthly lease payments from your business profits, thus reducing corporation tax.

Diesels used to be the default choice when it came to company cars. It is worth noting that the modern diesels which are cleaner than ever still have a place as they will be more economical on longer journeys. So if you have high mileage, this still may suit you.

Lets take two similar types and size of car with similar P11d values and a basic rate taxpayer (20% income tax)

Electric Car VW ID3 £32,935Kia Sportage GT Line 1.6 Petrol car £32,895
Emissions – 0g – 2% BIK rateEmissions – 154g – 35% BIK rate
£32,895 x 2% = £658 x 20% = £132 personal tax£32,895 x 35% = £11,513 x 20% = £2,302 tax
Company would pay 13.8% x £658 = £91Company would pay 13.8% x £11,513 = £1,588

For more information, please get in touch with Stedman Accounting at [email protected] or call 01243 531071.