The new “must have” – an electric company car?

Some of you reading this will be old enough to remember the 1980s when big hair and shoulder pads went hand in hand with Golf GTIs and, dare I say it, Ford Capris with the must-have furry dice.  If any…

Blog31st Aug 2021

By Lynn Gracie

Some of you reading this will be old enough to remember the 1980s when big hair and shoulder pads went hand in hand with Golf GTIs and, dare I say it, Ford Capris with the must-have furry dice. 

If any of this ring’s some nostalgic bells, then you will almost certainly be the same generation that remembers the “company car” era. The hilarious twitching of net curtains when a neighbour arrived home with the most coveted employee perk of any job: usually a Ford Cortina in some dodgy metallic green colour. If you were lucky enough to be in the “executive” bracket, then a maybe BMW 3 Series with that all-important sun roof. The reality was that many employees in the UK simply expected to be provided with a car, forming an integral part of any salary package. The income tax benefit of a company car was negligible back then, which meant it was always better from a cash perspective for employees to be provided with car, paying a small benefit tax charge, rather than funding this themselves via additional taxed salary. 

How times have changed… I would go as far as to say that it is now a rarity to know someone who has a company car. General attitudes to car use have certainly affected the marked reduction in company car provision, many employers recognising the need to reduce their company’s carbon footprint, but it is also the case that tax policy, over many years and various governments, has played an important role. 

The 1980s company car was only taxed on Directors and “Higher Paid” employees, defined as earning over £8,500. Successive governments chose not to increase this earnings threshold, no doubt because this was an easy tax target. Tax on fuel provision was introduced and a gradual increase in rates were applied to car values but, from 2002, the taxable benefit has been calculated based on an emissions system. The resultant benefit tax and employer national insurance charges meant that, in most cases, it simply didn’t make financial sense for companies or employees to consider a company car.    

Fast forward to 2021 and car manufacturers are currently falling over themselves to create the best electric car solutions before the 2030 petrol and diesel engine ban. It has led to an interesting marketing strategy for many luxury car brands. Eco-friendly, yet luxurious electric cars are perhaps the new “must have” accessory. Buying one is seen to be the automotive equivalent of giving up meat, proving very attractive for those who want to do the right thing for the planet, but still want a performance car that oozes kerb appeal.  

Tesla, Porsche, BMW and Audi are just some of the manufacturers all competing for this luxury end of the E car market. Whilst charging is seen as an issue for many, especially for significant distances, there are now over 24,000 charging points in the UK. Tesla currently leads the way with some 30 min supercharging stations, but everyone agrees more are needed for all car types. 

Tax breaks are attractive. Until recently, zero emissions meant zero tax, but currently the benefit is 1% of the list price, rising to 2% in 2022/23. Take, for example, a Tesla Model S Plaid which costs over £130K: this is a zero emission car, which can hit 0-60 in just under 2 seconds, with a range of nearly 400 miles. The taxable benefit would be £1,300, with maximum tax due of £600. Compare that to a 4 litre petrol car in the same luxury price bracket and you could be looking at a benefit of 37% of list price and a tax bill of over £22K. 

For those executives who are looking to negotiate their remuneration package, or directors of their own companies who fancy treating themselves to a car, maybe a new luxury electric company car is a unique tax break opportunity. 

If you would like to discuss this further, please contact Lynn Gracie, Private Client Tax Director, or your usual AAB contact.

To find out more about our Private Client Tax offering, click here.


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