Medical News
Spring 2024

Switching to an electric vehicle continues to be tax beneficial. However the favourable 100% first year allowance tax relief is due to come to an end on 31 March 2025.

For the 2024/25 tax year, a fully electric vehicle will fall in the 2% Benefit in Kind tax rate, which does sit favourably when comparing the tax due on either a petrol or diesel vehicle, although an incremental increase will apply of 1% per annum to 5% in 2027/28 tax year.

These low Benefit in Kinds (BIK) on fully electric cars (or good hybrids with emissions of less than 50g/km) means that anyone operating via a limited company may consider leasing or purchasing a relevant vehicle.  Based on current legislation, it is generally tax-efficient to purchase fully electric cars as company cars via a limited company. This is because the company car tax (2% for 2024/25) will be less than the Income Tax payable on the dividend should a company director/shareholder wish to extract funds to fund the car purchase personally.

If you purchase a plug-in hybrid car then it will be dependent on how many miles a vehicle can cover under battery power and the emissions figure as to whether it is more tax-efficient to purchase as company cars through a limited company or individual ownership.

Please see below the things to consider regarding purchasing a car from the company.

Benefit in Kind (BIK)

It is important to know that the provision of a company car gives rise to a benefit in kind, which has tax implications for both you and the company. You will be liable to pay Income Tax on the benefit and the company would also suffer Class 1A National Insurance (NICs). 

The benefit in kind (BIK) rate is also dependent on the level of CO2 emissions of the car, but as you are aware from 6 April 2024 the BIK % for cars which are fully electric will be 2%.

The BIK % is applied to the list price to get the BIK figure - this will then be the figure that you will pay Tax on. The BIK will be declared on your personal Tax Return as employment income.  

For example, a Tesla car with a list price of £90,000 would generate a BIK figure of £1,800. For a higher-rate tax payer, income tax liability of £720 (£1,800 x 40%) will arise on the company car for the 2024/25 tax year.

The company will also be liable to Class 1A National Insurance Contributions at a rate of 13.8% of the BIK figure. In the above example this would be £248.40 (£1,800 x 13.8%). Please note however, that the company will receive Corporation Tax relief on the Class 1A National Insurance Contributions paid.

Capital Allowances

The company will be able to claim tax relief on the purchase, the amount of the relief is dependent on the level of CO2 emissions of the car. From 6 April 2021, the following capital allowances can be received on the cost of the car:-

CO2 Emissions	Capital Allowances
0 g/km	100% first year allowance – (can only be claimed on new and unused cars)
Between 1 g/km and 50 g/km (or second hand EVs)	18% reducing balance
Above 50 g/km	6% reducing balance

Electric charge-points are also eligible for 100% first year allowances until 5 April 2025.

Please note that currently 100% first year allowances are available on new and unused electric and zero emissions cars which are due to end on 31 March 2025. If you are considering buying a vehicle, you may wish to acquire before this date in order for the company to benefit from full tax relief on the cost of the vehicle.

In order to obtain tax relief in the form of capital allowances, the company will need to either:

• purchase the car outright
• purchase the car using a straight-forward loan with interest in the company’s name or
• by hire purchase in the company’s name.

It is also worth noting that if Capital Allowances are claimed, when you come to sell the car in the future, if the car is worth more than the ‘tax value’ of the car then the company may have to repay back some of the tax relief. This is known as a ‘balancing charge’.

Tax relief on financing and associated car expenses

The company will also receive tax relief on car running expenses and if the vehicle is purchased using a loan, the company will receive tax relief on the interest element of the monthly repayment.

The company would not receive capital allowances however if it were to lease the car. Instead the company would receive Corporation Tax relief on the lease/rental payments (relief subject to 15% disallowance if >50g/km).

NHS Fleet car leasing scheme

Employed doctors and consultants may be eligible to use the NHS fleet scheme by virtue of their NHS permanent employment. The car leasing scheme offers favourable rates and is open to permanent staff and their families to allow them to lease a new vehicle for three years. The scheme works as a salary sacrifice whereby the car lease payments are deducted from an employee’s salary, enabling them to save income tax, national insurance and pension contributions. Salary sacrifice in turn reduces an employee’s pensionable and taxable income which may impact on pensionable pay and subsequently on NHS pensionable benefits.

For future or present high earners, it is essential that there is careful planning as when the salary sacrifice arrangement ends, a salary will increase back to pre-salary sacrifice levels and may lead to an individual’s pension input exceeding the annual allowance threshold (currently £60,000).

If you would like assistance in calculating tax savings and any tax and National Insurance implications on any specific cars, you should speak with your usual contact at Humphrey & Co for more details.