Fleet & business Tax benefits Reduce your tax bill with electric vehicles The motoring tax regime is designed to favour the take-up of ultra low emission vehicles – so make the most of it! Key points: Businesses and company car drivers can save thousands of pounds switching to plug-in vehicles Benefit in Kind (BIK), Vehicle Excise Duty (VED), capital allowances, and salary sacrifice regimes all incentivise electric vehicles Planned changes to company car tax rules will strengthen the case for going electric Understand tax and make the biggest savings Eligible plug-in vehicles benefit from government grants and tax incentives, which help to reduce the total cost of ownership and aim to make electric cars more affordable for you and your employees. Along with reduced fuel expenditure this is where you can make the most cost savings. Benefit-in-Kind and Class 1A National Insurance Company car benefit-in-kind (BIK) tax rates are set in advance to enable businesses to plan their vehicle choice lists and calculate the financial cost to themselves and employees. Like BIK tax, employers’ Class 1A National Insurance contributions, are linked to a car’s CO2 emissions and P11D value. Table 1 below compares the BIK tax costs for a four year period between 2017 and 2021. It compares a zero emission vehicle with a P11D of £30,000 and an identically priced petrol car that emits 104g/km CO2, revealing the yearly savings for lower (20%) and higher (40%) rate drivers. Table 1 – BIK tax costs for a four year period between 2017 and 2021 £30,000 P11D value 2017/18 20%/40% 2018/19 20%/40% 2019/20 20%/40% 2020/21 20%/40% Total (4 years) 20%/40% Zero emission £540/£1,080 £780/£1,560 £960/£1920 £120/£240 £2,400/£4,800 Petrol (104 g/km CO2) £1,140/£2,280 £1,260/£2,520 £1,440/£2,880 £1,500/£3,000 £5,340/£10,680 Saving £600/£1,200 £480/£960 £480/£960 £1,380/£1,760 £2,940/£4,880 Over four years, up to including 2020/21, a lower rate company car driver would pay £2,940 less in BIK tax driving the electric vehicle, while a higher rate taxpayer would pay £4,880 less. The Government has deferred the planned increase in BIK tax for electric vans, meaning it will stay at 20% of the rate of a diesel or petrol van until 2018. Table 2 highlights the yearly Class 1A NIC savings for employers. Table 2 – Class 1A NIC savings At £30,000 P11D value 2017/18 2018/19 2019/20 2020/21 Total (4 years) Zero emission £373 £538 £662 £83 £1,656 Petrol (104 g/km CO2) £787 £869 £993 £1035 £3,684 Saving £414 £331 £331 £952 £2,028 Source: HMRC, Go Ultra Low calculations Based on this P11D, you would save your business a total of £2,028 in Class 1A NIC over a four year period by choosing the electric vehicle. On a fleet of just 10 models, that equates to a saving of more than £20,000. Over four years, up to including 2020/21, a lower rate company car driver would pay £2,940 less in BIK tax driving the electric vehicle, while a higher rate taxpayer would pay £4,880 less. The Government has deferred the planned increase in BIK tax for electric vans, meaning it will stay at 20% of the rate of a diesel or petrol van until 2018. Tax changes from 2020/21 Changes from the 2020/21 tax year are designed to give you further incentive to operate electric vehicles and encourage your employees to choose them as company cars. A total of 11 new bands for ultra-low emission vehicles below 75g/km will be introduced – five are linked to the number of miles a car can travel on electric power alone – including a separate zero emission band. Vehicles emitting 51-54g/km will be taxed at 15%, after which a one percentage point increase applies per 5g/km CO2. It’s time to start planning for your next fleet cycle… Vehicle Excise Duty Pure electric cars are exempt from paying Vehicle Excise Duty (VED) to offer full support for those opting for the very cleanest cars and vans. All cars that emit less than 75g/km CO2 will pay less road tax in the first year, delivering additional cash savings for plug-in hybrids on your company’s fleet. Capital allowances Capital allowances enable companies to write down the cost of purchasing cars and vans against taxable profits. At first it may appear complicated but the main thing to remember is that cars and vans with CO2 emissions of 75g/km or less are eligible for 100% first year capital allowances until 31 March 2018. From then until April 2021, the threshold for qualifying cars will reduce to 50g/km. For zero-emission vans, this benefit is limited to businesses that do not claim the government’s Plug-in Van Grant. In contrast, on cars with emissions of 76-130g/km and above 130g/km you can only write down 18% and 8%, respectively, of the cost of a car against your company’s taxable profits each year. Business expenditure on vans (ex-VAT) that are not zero-emission qualify for tax relief as capital allowances at the rate of 18% a year. From April 2018, the 18% capital allowance will apply to cars with CO2 emissions of 51-110g/km, with vehicles above 110g/km in the 8% category. Don’t forget – you can also claim 100% first year allowances on electric vehicle chargepoints installed at your workplace before 2019 – allowing you to deduct the cost of the chargepoint from company pre-tax profits each year. So get installing now! Salary sacrifice Salary sacrifice car schemes are a popular benefit, allowing employees to sacrifice a portion of their monthly salary in return for a new car. Savings are generated because the employee is no longer liable for income tax on the proportion of the salary they sacrifice. It also has the added bonus of improving employee satisfaction and retention. You have a role to play in ensuring you choose the right car for employees’ needs – pure electric cars are perfect for those who travel short distances, while an electric car with a range extender works well for employees with a fairly long but predictable commute. Importantly – plug-in vehicles are exempt from new rules on tax and National Insurance savings when employees choose a company car where a cash alternative is available or through a salary sacrifice scheme. From April 2017, the Government changed the tax treatment of benefits received through Salary Sacrifice schemes. Most such benefits are now subject to Income Tax (for the employee) and National Insurance Contributions (for the employer). These levies are imposed on the highest of either the salary sacrificed or the taxable value of the benefit itself – except in the case of ultra-low emission cars with emissions up to 75g/km CO2, which are not affected by the changes.