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Armstrong Watson Review Tax Benefits of Electric Cars

We asked Nigel Holmes, Partner at Armstrong Watson a leading independent firm of accountants and financial advisers in the North of England and South West Scotland to provide an overview of the tax benefits of using electric cars for business and pleasure.  This is their view of the comparison between the super efficient Nisaan Quashqai DIG T-115 arguably one of the best diesel crossovers on the market and currently the 6th best seller in the UK with an astonishing 74 mpg fuel efficiency with the Nissan Leaf Ascenta.  They are almost identical in size and cost but the Leaf runs on pure electric.

This is what Nigel had to say.

IMG Nigel Holmes FVH 2011 Colour (2)

“Thousands of pounds can be saved just in tax for both employees and employers by choosing an electric vehicle. Even more savings are made on running costs. The Nissan Qashqai reports 74.3 miles per gallon. Based on current prices of fuel and electric, the same spend would enable you to travel 245 miles in the electric Nissan Leaf.  For a car travelling 10,000 miles in a year the saving equates to another £48 per month. Definitely an option worth considering!


Benefits to employers

Taxable benefits on cars in recent years have been related to their CO2 emissions figures.  Cars with high CO2 emissions are heavily taxed. Currently cars with a CO2 figure of less than 95g/km attract 100% capital allowances. This limit reduces to 75g/km in 2015. This means that the full cost of the car is tax deductible in the year of purchase as opposed to the usual situation where the tax relief is drip fed slowly over the ownership of car. The tax relief is restricted for sole traders and partnerships in proportion to their private use.

Benefits to employees

If a car is provided to an employee or a director of a company then that individual is taxed on their private use by way of a benefit in kind. This tax charge is, once again, linked to CO2 emissions and varies between affordable for efficient cars and severe for cars with high emissions. If the employer also pays for fuel on behalf of an employee a further benefit in kind is charged on the same basis.  An electric car therefore produces a tax efficient outcome. For 2014/15 the benefit in kind for an electric car is 0% of list price, i.e. no tax! Also there is no fuel benefit. This can result in a massive saving of tax for any employee choosing to have an electric car. From April 2015 there will be a charge but only 5% of list price.

What does this mean?

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Annual Fuel Costs Comparison – Based on 10k Miles

Nissan Leaf Quashqai
Electricity 13p/kwh £252
Diesel £6.18 / gallon £832
 Annual Savings  £580

Cost of Company Car Tax for 20% Tax Payer

Nissan Leaf Quashqai
2014/15 Benefit in kind 0% = £0 15% = £58/month
2015 /16 Benefit in kind 5% = £20/month 17% = £66/month
Total £240 £1,488

Employer Purchasing Outright – Capital Allowance Implications with 50k Profit

Nissan Leaf Quashqai
2014/15 Capital Allowance 100% = £23,490 18% = £4172
Corporation Tax Payable £5,302 £9,166