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Electric cars and their tax implication

Fuel vehicles are the major contributor to Air pollution. Fueled vehicles produce a significant number of pollutants such as nitrogen oxides, carbon monoxide, and hydrocarbons and are major source of Greenhouse gas emission. Road traffic has increased by 29% from 1990 to 2018, contributing to 6% Greenhouse gas emission. Green gas emission has grown slowly in comparison to the increase in traffic due to the introduction of ultra-low emission vehicles, although only 0.5 percent of all licensed vehicles were ultra-low emission vehicles as of 2018. Moreover, emissions from vehicles are more harmful as compared to other sources. To tackle environmental pollution and the greenhouse effect, the UK government has set a goal to adopt a net-zero target by 2050, which signifies that every road transport will be zero-emission by 2050.

In this prospect, the UK government has announced nil tax rates on all-electric cars in the fiscal year 2020-2021. This initiative is to promote the transport industry, focusing on electric car production.

Electric cars, the way to the future

Electric Cars are not only emission-free, but these cars are also energy conserving as they use renewable energy, lowering their ecological footprint to a great extent. With big companies stepping into production, electric cars are trending. If this trend continues, it is expected that the electric car market will grow with compound annual growth (CAGR) of 29% from 2021 to 2026 globally. The Statistics show a positive future of electric cars derived from the increase in fuel prices, growing concern for pollution, and government initiatives.

Electrical cars are for sure futuristic but have several drawbacks. They have high electricity costs, fewer charging stations, low battery capacity, and low production rates. However, these limitations are manageable by taking positive initiatives like reducing tax on electric cars and electric car production industries, making charging station webs, and inventing better batteries. These initiatives might seem far-fetched, but companies like Tesla are already doing it. In my opinion, fueled cars are overrated and with a growing population, they are going to contribute to unmanageable environmental problems in the near future. So, it is better to take a leap into the future by focusing on electric car production and use before the future becomes unbearably hot and polluted to live in.

The benefits of using company’s electric car and its tax implications Beneficent in kind are not included in wages and considered as extra benefits given to employees. Some of these benefits have wider tax implications for the employees and companies. There are two kinds of BIK given concerning transport that are either car allowance or company cars. Car allowance is more affordable and provides employees with more flexibility and choice, but this comes with an additional burden on employees as they have to track business mileage and maintain the car. On the other hand, using a company car provides more security, and the employees don’t need to concern themselves with the maintenance and business mileage of the car. If you are using a company car, you are taxed based on the value of benefits which are estimated by factoring in the price of the vehicle, emission of the car, and whether you are paying for the fuel or not.

Providing electric cars to your employees can greatly reduce their tax implications as these cars are exempt from tax for the year 2020-2021 while lower tax rates for the next two tax years.

The tax rate on an electric car with zero-emission

2020/21: 0%

2021/22: 1%

2022/23: 2%

These rates are also applicable to plug-in hybrid cars, which emit less than 50 grams of CO2 per kilometer and can cover 130 miles on pure electricity.

How to calculate benefits in kind (BIK)?

Beneficent in-kind tax for cars can be calculated by multiplying P11D value by BIK percentage, then multiplying it with the employee’s top rate of tax. The P11D value is the price of the company car set by HMRC. The cars with less emission are charged a lower BIK percentage and vice versa. For example, Tesla Model 1 is charged 1% BIK, while Range Rover, which is a CO2 emitting car, has a percentage charge of 37%. This example illustrates the amount of money your employees can save on tax using an electric company car