Questions and Answers

What are the tax implications of purchasing an electric car?

I own a Limited Company and am looking to replace my existing company car. I’d like to buy a car which minimises environmental impact. Are there any tax reliefs available to me if I buy an electric car?

What are the advantages of buying an electric car?

From a business perspective there are 2 main advantages to buying an electric car rather than a petrol or diesel car. These benefits are in respect of capital allowances and Benefit in Kind (BIK).

Capital Allowances

As the car is electric and classified as zero emission, the company may claim a 100% write-off against the company profit in the accounting period the car is bought, subject to a cap of €24,000. This creates a corporate tax saving of €3,000 (€24,000 x 12.5%).

If the company had replaced the car with a petrol or diesel car, any capital allowances available must be spread over eight years. Also, the amount of capital allowances you can claim is dependant on the emissions rating of the car, as follows:

cars in category A or B, €24,000,
cars in category C, the lesser of €12,000 or half the cost of the car, and
cars in category D, E or F, zero.

By opting for a greener zero-emission car, you get the maximum capital allowance deduction available of €24,000 and you can claim this deduction in full in year 1 rather than spreading the cost over 8 years.

Benefit in Kind

Any company employee/director who uses a company car for their own personal use must pay additional taxes for this benefit through their wages. This is known as Benefit in Kind (BIK).

The BIK charge on a petrol or diesel car is between 6%-30% of the original market value per annum depending on business kilometres undertaken during the year. On a car worth 50k the BIK tax charge could be as high as €7,800 (52% x (€50,000x 30%)).

However, if the original market value (OMV) of the electric car is €50,000 or less, then no BIK charges arise. For electric cars worth more than €50,000 the OMV is reduced by the €50k allowance to significantly reduce any BIK charge.

To incentivise early uptake of this electric vehicles, in 2023 there will be a reduction to €35,000 in the BIK exemption, €20,000 in 2024 and €10,000 in 2025. The threshold will gradually reduce to zero by 2026, with a new BIK rate of up to 22.5% being applied. This will still be lower than the top 30% BIK rate for internal combustion engine vehicles.

Date published 17 Feb 2022 | Last updated 27 Oct 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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