Company Car Tax – It’s Electrifying!

I still get asked all of the time about whether a car is better being owned by the company or by the individual. There are lots of factors in play here, but in general terms there is a simple over-riding principle – standard cars (particularly diesel) or almost certainly better owned privately, electric cars are almost certainly better owned by the company, and hybrid cars are more borderline depending on their emissions, value, and electric range. Let’s look at a few options:

Tesla Model S  – All Electric

The staple electric car for company directors up and down the land, the Tesla Model S has had the sales boost of becoming ultra-tax efficient this year. If you’ve got around £80k for the basic model lying around, or possibly just 3 Bitcoins, then the Benefit-in-Kind is just 1% of that value in 2021/22, raising to 2% next tax year. This means a higher-rate taxpayer would pay just £320 (based on an £80k list price) in company car tax this tax year. What’s more, the company could claim tax relief on the purchase depending on how the deal is structured.

BMW 330e – Hybrid

Having successfully killed off Mondeo Man, BMW have now added a plug-in hybrid model to it’s popular 3-series range. At £38k, it still remains more expensive than a standard 3-series which will continue to put some buyers off. Based on emissions of 38 g/km and an all-electric range of 37 miles, the jump in benefit-in-kind from the all-electric Tesla is significant, moving from 1% to 11% of the list price. This means a higher-rate tax payer will pay around £1,700 in tax per year depending on the model, and the tax efficiency for the company is also reduced compared with the Tesla. This makes it much more marginal, and will heavily depend on how the purchase will be funded and what the usage of business miles vs personal miles will be to think if this is a good idea or not.

With all hybrid vehicles, just remember the sting in the tail when working out company car tax – the ‘All-Electric Range’ (in miles) which was a new condition for 2020/21 – this tries to remove some of the tax efficiency for hybrids which are in reality huge and powerful petrol performance cars which could use their hybrid status to report low emissions under test scenarios. This new measure penalises any hybrids which are not capable of running all-electric for any significant distance, for example the Porsche Cayenne E-Hybrid or the Range Rover PHEV.

 Volkswagen Golf – Diesel

The VW Golf was Britain’s best-selling new car in 2020, and with it’s great styling, excellent build quality, and affordable price, it is no wonder why. But to illustrate how expensive standard cars now are as company cars, lets use the Golf 2.0 Litre Diesel as an example. The car will only set you back £25k brand new, but thanks to punitive tax rules it will carry a benefit-in-kind rate of 31%, costing a higher-rate tax payer £3,100 per year, which significantly higher than both the Tesla and the BMW despite being a much cheaper car. In fact, I make the monthly tax liability on this car comparable to the lease costs, so in (very) simplistic terms having this vehicle as a company car is probably twice as expensive as owning it personally.

Summary

The above cars are quite wide ranging in price and specification, but this is to illustrate my rule of thumb with company cars; electric cars almost always make sense to be company cars, standard combustion engine cars almost never make sense to be company cars, and hybrids are somewhat marginal. In the case of a hybrids, it comes down to how much of a ‘true hyrbid’ the vehicle really is – is it actually helping to save the planet, or is it a wolf in sheep’s clothing?

For more information contact Ben Powell on 01905 794 504 or email ben.powell@ballardsllp.com.

Disclaimer

Although correct at the time of writing, the above is for information purposes only and not intended as professional advice. All situations are different and you should contact your accountant to take advice before acting.