Are corporate tax schemes responsible for the increase of electric cars on the road?
The number of electric vehicles on UK roads is on the rise, as people not only buy into the environmental benefits of electric cars, but also see the significant cost savings that they offer.
Behind some of this increase in sales are the promotion of salary sacrifice schemes by some dealers and businesses, who are keen to extol the financial advantages of running an electric company car – not least that workers pay around half the monthly payment using salary before tax is deducted.
It is partly the reason the all-electric Tesla Model 3 became the second-most popular car bought in Britain last year.
It has been confirmed that much of these sales were completed by leasing companies who hope to win over new company car drivers this year with amazing deals.
The current increase in salary sacrifice leasing is a result of the Government reducing the salary sacrifice tax rate, from 16 per cent to just 1 per cent for electric vehicles, from April 2020.
According to Toby Poston, the Director of Corporate Affairs for the British Vehicle Rental and Leasing Association, the reason behind the popularity of leasing is clear.
He gives the example of the Tesla Model 3 that would usually cost £6,800 per year to lease but under the salary sacrifice scheme would cost a higher rate taxpayer £4,200 a year, or just £351 a month.
Of course, one per cent of the car’s value is then taxed at the employee’s normal rate, which in the same example would amount to just £160 a year. For those earning more, the benefits could be even greater.
This is just one of the many benefits of leasing or owning an electric company car. In some cases, businesses can even write-off most of the cost of an electric vehicle as they can claim capital allowances on cars bought and used in a business.
This allowance allows you to deduct part of the value from your profits before you pay Corporation Tax.
If you have questions regarding the rules surrounding company cars, salary sacrifice and capital allowances, please contact your Seymour Taylor representative today or our Business Tax Director, Liza Rowles at or call 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 23 February 2022.