29 October 2022
The cost of energy, its impact on inflation and the overall increase in the cost of living is never far from the front pages at present.
Can company cars be cost efficient?
Employers frequently ask what can be done to help staff in a potentially tax efficient way to reduce costs or increase net pay. One area generating (or perhaps we should say sparking) lots of interest is the provision of electric vehicles (EVs) as company cars. The tax and wider cost benefits of EVs can include:
- lower taxable benefits in kind on EVs when compared with petrol or diesel cars, together with reduced employee and employer National Insurance contributions (NICs) when provided through salary sacrifice arrangements, resulting in increased employee net pay;
- no taxable benefits in kind on installing chargers at employees’ homes, or when cars are charged at the employer’s premises;
- a tax deduction of up to 100 per cent for the employer on the cost of buying the EV and charging equipment;
- free charging at many retail and other public sites/car parks;
- lower business mileage costs and reduced fleet servicing and maintenance costs for the employer;
- lower commuting costs for staff; and
- clear environmental benefits.
Many employers extend the opportunity of driving an EV beyond those ‘job need’ or ‘perk’ company car drivers, to include all staff via salary sacrifice arrangements. Here the monthly costs to the employer of leasing and running the cars are met by employees through salary reductions in return for the car being provided to them for their daily use. The overall effect of employees choosing to receive EVs through salary sacrifice arrangements is that their car budget increases or net costs reduce as a result of the tax efficiency of such arrangements and the employer offers a very valuable benefit without increasing its costs. Some of the additional benefits for salary sacrifice EV drivers include:
- a fully maintained and insured new car with no credit check or finance and/or deposit required;
- no residual value risk, as would be present if the car were owned privately;
- a cash lump sum for selling their current car (potentially higher than usual at present due to strong second-hand car values); and
- reduced commuting and other running costs in comparison to their current car.
There are many factors to consider when thinking about the introduction of EVs into the company car fleet, including just how practical they are for different staff roles and the availability of charging infrastructure locally. Nevertheless, the adoption of EVs is growing rapidly and with so many other cost pressures for employers and employees and the supply of EVs improving, now may be the time to go for it.
For more information, please get in touch with Mark Morton or your usual RSM contact.