Over the past couple of weeks I have been preparing P11D benefit in kind reports for various clients and as such I thought it would be worth highlighting what is currently the most tax efficient benefit in kind for both an employer and employee.
Some of the most common benefits in kind include company cars or vans, health insurance, interest free loans, fuel provided for non-business use and employer provided living accommodation. Currently however the most tax efficient of all these benefits is the provision of an electric car.
The Benefit in Kind value of a company car is based on a percentage of the official value of the car, the P11D value, the percentage being primarily determined by the car’s CO2 emissions. As a rule of thumb, the higher the CO2 emissions and the higher the value of vehicle the higher the taxable value will be. However, for the 20-21 tax year, vehicles which for tax purposes are classed as electric will generate no tax liability. Such vehicles include both battery electric cars and, for cars registered after 6 April 2020, plug-in models with CO2 emissions of 1-50 g/km, where the electric-only range in miles exceeds 130.
For businesses who purchase 100% electric vehicles, whether they are Teslas, Jaguars, Peugeots or Skodas, the value of the vehicle is fully allowable against tax. For employees who are provided with an electric car as described above, for the 20-21 tax year there is no taxable benefit and for the next two years the taxable benefit is limited to 1% and 2% of the value of the vehicle respectively.
Finally, as traditional fuel is not provided for the vehicles there is no fuel benefit to be charged which makes the electric company car fully tax free.
I realise electric vehicles are not the cheapest, and you need to have a vehicle that meets your business requirements but given the current tax advantages electric is certainly worth considering.