The government’s recent announcement of a 1.25% health and social care levy may have broken their election manifesto pledge in the eyes of many, but it has also made the switch to an electric company car even more attractive for company owners and employees.

In April 2020 the government introduced an enormously enticing tax break for company car drivers choosing to switch to electric cars.

Benefit in kind rates of 2% of the value of the car (for the 2021/22 tax year) mean that an employee in the higher rate tax band opting for a salary sacrifice in return for an electric company car would save 42% tax and NI on the sacrificed salary and yet suffer a tax rate of just 0.8% on the company car value.

The new health and social care levy will make the savings even greater, as the salary sacrificed will also avoid the new levy whilst company car tax rates are unaffected.

Similarly, company shareholders remunerated by way of dividends will also avoid the new 1.25% levy to be added to dividend taxation if they sacrifice dividends in return for an electric company car.

Electric cars also continue to attract 100% corporation tax relief whether purchased outright or via funding methods such as hire purchase/lease.

If you are a company director/shareholder looking to take advantage of the tax breaks on electric cars for yourselves, fellow directors, shareholders or indeed your key employees , please contact your NR Barton Partner/Manager/Tax department for more information.

Scott Lees – Senior Tax Manager
01942 242245