In the tax year just gone, electric company cars counted as tax-free benefits. Meaning, if you were given an electric car for work, you would not be taxed on its value. This policy is changing for 2021/22, read on to learn how and why.
Taxable benefits on company cars are calculated, based on an “appropriate percentage” of the car’s overall value, in cash. This value is determined from the list price of the car, any extras, plus a deduction from any contribution made by the employee, up to £5000.
This taxable amount is also dependent on the amount of annual usage the car gets, and also reflects the employee’s private use of the car.
What Percent is Taxed?
The taxable percentage is calculated from a few factors. One is the car’s CO2 emissions. In the last tax year that percentage for fully electric cars was set at 0%, meaning no tax had to be paid for 0 emissions cars.
For the coming tax year, that percentage will be 1%, which is still lower than the percentage set for higher-emission cars. It reflects the rise in demand for electric energy sources, and the impact they are having on the environment.
The amount you actually will pay in tax is dependent on your tax band. It is ultimately worked out as a percentage of the taxable amount, so if your taxable amount was £300, and you were a basic rate taxpayer, this would work out as 20% of that £300, so £60.
Lowering Your Tax
If you can’t stand electric cars, then choose a different kind of low-emitting car to boost your tax efficiency.
For this coming tax year, the appropriate percentage calculation will also depend on the car’s registration date, as well as the number of emissions. What’s more, the car’s efficiency levels also determine the percentage. Ie, how far the car can travel on one charge.
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