Electric cars get extra sparkle from tax breaks

Peugeot E208

The Toyoto Prius hybrid — once said to have the “soul of a milk-float in the body of a car” — has been a familiar sight on the school run for more than a decade.

But electric cars, rather than hybrids, are set to become even more widespread with tax breaks dubbed the “free-car bonus”. Accountants have reported a flood of small business owners desperate to know whether they can buy an electric car for personal use — and save thousands of pounds in the process.

The number of electric cars being sold every year in Britain has shot up more than 21%, from 59,700 in 2018 to 72,700 last year, according to the Society of Motor Manufacturers and Traders.

Since April 2018 small businesses that buy cars with CO2 emissions of less than 50g per kilometre have been able to claim a capital allowance worth 100% against the purchase. In other words the entire cost of the car can be deducted from company profits.

And that is not the only perk. Electric cars such as the Jaguar I-Pace, which sells for about £64,500, also qualify for a £3,500 plug-in grant.

Because the value of the car is used to reduce company profits, which would have incurred corporation tax at 19%, a new I-Pace would save the business owner £12,255 in tax (19% of the purchase price). With these two allowances a £64,500 car has in effect cost £48,745.

But that’s only the start. As of April 6 this year there will be a further tax break for those driving a company car for personal use. A 2-litre petrol Jaguar E-Pace SUV would cost a basic-rate taxpayer £202 a month in benefit-in-kind tax, or £404 a month for a 40% taxpayer and £455 for a top-rate 45% taxpayer. In the first year this would cost £4,848 for the higher-rate taxpayer.

From April 6, however, there will be no benefit-in-kind charge on electric cars with emissions of up to 50g. So choosing an electric model as a company car would save nearly £5,000 a year. The tax rate does rise to 1% and 2% in future years, but this is far below the rates for comparable non-electric cars.

Elaine Clark, from Cheapaccounting, said: “The catch is you do need the cash to buy the car. But the tax reliefs and benefit-in-kind savings make it a free-car bonus… I expect I will look at this for my own car in the not too distant future.”

Electric cars have many celebrity fans, despite the often frustratingly long waiting lists and the problems with finding a place to charge them quickly. Last year the transport secretary, Grant Shapps, who owns a £44,090 Tesla Model 3, said the government grant of £3,500 “will go eventually”. “If you are out there reading this, thinking of buying an electric car,” he said, “buy it while the subsidy’s there, because it will go eventually.”