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Drivers of zero emission vehicles benefit from a reduced 2% rate for the tax year 2022 to 2023.

  • This 2% rate also applies tocompany cars with emissions from 1-50g/km and which have an electric mile range of 130 miles or more.

The above rates are currently set to stay consistent for the 2023/24 and 2024/25 tax years.

For companies that wish to purchase rather than lease their cars, the purchase of new, unused cars with zero CO2 emissions are eligible for 100% first year capital allowances. This means you can deduct the full cost from your pre-tax profits.

The purchase of new, unused cars with CO2 emissions from 1-50g/km will be added to the main pool for capital allowances with an annual writing down allowance of 18%.

The purchase of new, unused cars with CO2 emission exceeding 50g/km must be allocated to the special rate pool, receiving annual writing down allowances at 6%.

The fitting of a qualifying electric charging point for cars which must be used in the business can benefit from the super-deduction, which is the 130% first-year allowance. This is currently available until 31 March 2023.

VAT

More difficult - VAT on a new car can only be claimed if it is used only for business. The car must not be available for private use, and you must be able to show that it is not, for example it is specified in your employee’s contract.

What are the benefits of a salary sacrifice scheme for an employee?

Salary sacrifice is where your employee agrees to give up part of their pre-tax salary in exchange for a benefit from their employer. A salary sacrifice scheme will allow the employee to drive a fully electric company car, by forgoing a portion of their gross salary. The amount will be deducted before tax and National Insurance contributions are applied which in turn reduces their taxable gross pay.

What are the benefits of a salary sacrifice scheme for an employer?

A salary sacrifice scheme will allow the employers to offer employees a new car at a lower cost with a tax-efficient payment method. Additionally, the company should also benefit from reduced National Insurance contribution payments.

Overall Benefits

For the Employer:

  • Deduction from pre-tax profits for the cost of the Car if owned by the business
  • Increased employee engagement and retention
  • National Insurance contribution savings
  • Reduced fuel costs
  • No initial upfront costs – if leased
  • Employee interaction and engagement is covered by the leasing company
  • Salary sacrifice schemes complement existing employee benefits
  • No fuel benefit when an employer pays for the cost of charging the electric company car
  • Road tax has been reduced to zero for electric cars until 2025

Benefits for the Employee:

  • Access to a brand-new electric car
  • Significant National Insurance savings
  • No initial upfront costs
  • Flexible mileage and terms
  • Fixed cost motoring without unexpected bills or service costs
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