Electric company cars to be exempt from tax in 2020/21

Last year the Government announced that electric vehicles will be exempt from company car tax in the 2020/2021 tax year. This will be the first opportunity for company cars to be to be taxed at 0% as a benefit in kind, allowing businesses to make the transition to zero emission cars.

Company Cars are classed as benefits in kind and given to employees within packages that are not included in salaries. Sometimes this benefit can have a wider tax implication for both the company and the employee.

No matter the registration date, pure electric cars with zero tailpipe emissions and certain plug-in hybrid cars will be taxed by the following benefit in kind percentages (company car tax rates) for the next three tax years:

• 0% during 2020/21
• 1% during 2021/22
• 2% during 2022/23

 What is the difference between company car Allowance Vs. a company car?

A car allowance can be more affordable for your company although it can put additional responsibility on the employee to maintain the vehicle and track business mileage.

Having a company car will offer more security to the employee and with this option the employee is taxed on a theoretical value of the benefit (a combination of the list price of the vehicle, emissions of the car, whether private fuel is used or not).

Considering that the HMRC have data showing that the amount of employees paying company car tax has now reached a five year high the changes to tax and electric vehicles will show a much more tax efficient choice for employees.

We’re heading towards a more conscious time when it comes to sustainability and working towards an emission free future.