Alastair Kendrick: Who really benefits from electric car tax incentives?

It is important to note that the benefit in kind (BIK) on electric vehicles applies only for the year to 5 April 2021, after which we will see the rate increase year on year. Therefore in determining the viability of moving across to an electric car, it is essential to consider the total tax position over the life of the lease. Whilst this undoubtedly will be less than with a petrol or diesel car, it will be different to a one year analysis.

However, more importantly, where there is a saving for an employee, this is unlikely to be the position for the employer. In reality the cost price of a petrol or diesel car is likely to be significantly cheaper than an electric vehicle. In addition, we are seeing that the anticipated end of term value of an electric vehicle may mean that the depreciation in the electric vehicle over the period of ownership could be significantly greater than that of an equivalent petrol or diesel vehicle. In layman’s terms, it will be considerably more expensive to lease an electric car compared to a conventional engine car.

In these times of economic restrains due to the Covid-19 (Coronavirus) pandemic, we are not seeing a willingness to face the increased costs for an organisation if they move employees to an electric motor. This is particularly the case of the general workforce where we are seeing some employers offer their directors or senior managers an electric vehicle in the basket of vehicles they can take, but not offering this opportunity to the wider workforce.

Tax breaks offered on electric cars may sound attractive for the employee, however, more incentives are needed for employers to encourage them to change their car policy.

Alastair Kendrick is an employment tax and company car specialist at MHA Macintyre Hudson.