The benefits of electric cars for small businesses

Using electric vehicles or EVs will contribute towards the government’s net zero targets, they have lower running costs, lower maintenance than their fossil fuel equivalents, and generally appear to be holding their resale value. 

 

However, the distance you can travel before you need to recharge could be a limiting factor, so EVs won’t be suitable for all business uses yet. And, although there are now over 29,500 charging points across the country you can’t yet be sure you will find one when you need one. If you can’t find an ultra-rapid charging point you could have time for several cups of coffee and a good walk before you’re ready to go again. 

 

It's also worth bearing in mind that sales of new petrol and diesel cars in the UK will end by 2030. 

 

Cars with high CO2 emissions have a higher benefit in kind (BIK) charge so you will pay more tax, depending on your earnings. Your business will also pay 13.8% National Insurance (NI) contributions on the benefit, although this is deductible for corporation tax purposes. 

 

In contrast, the BIK rate for fully electric cars is a cash equivalent of 2% of the list price in 2022/23. This will be retained until April 2025 but will increase to 3% for the 2025/26 tax year, 4% for 2026/27 and 5% for 2027/28. Non EVs will also see the same 1% increase per year in the BIK over the same timescale. Road tax will be payable on EVs from 2025 and is expected to be £10 for the first year and then the same as other vehicles in following years. 

You will have already paid tax on your earnings if you buy or lease a car using your director’s salary. 

 

If your company buys the car outright or with a finance agreement it will be an asset for your business. You can claim a 100% capital allowance for the purchase of a fully electric new car in your company tax return for the first year of ownership. So, for example, if your business has £100,000 of taxable profit you would normally pay £19,000 (or 19%) in corporation tax. 

 

If you buy a new electric car for £80,000 through your business either outright or with finance your capital allowance reduces your taxable profit from £100,000 to £20,000, which reduces your corporation tax to £3,800; a saving of £15,200 in the first year. 

 

If you prefer to lease a car the expense will be included in your profit and loss account and can be off-set against corporation tax. However, you will pay the lease cost plus VAT and there is a 50% restriction on the recovery of VAT on lease cars so you can only reclaim 10% rather than 20%. If you have a maintenance package as part of your lease you can claim all the VAT on that part of the cost. 

 

All the costs of maintaining your company car can be put through your business and are tax deductible including insurance, servicing and repairs. 

 

If your business buys your car but you charge it at home you can claim 5p per business mile travelled to contribute to the cost of the electricity used, although the government’s advisory fuel rates (AFR) are regularly updated so you will need to check them each quarter.