More people are switching to electric cars since these vehicles are the future. But electric cars don’t come cheap, whether you are leasing or buying. Governments know this, and that is why electric vehicle tax credits exist.
If you have never thought about how you can benefit from savings on tax with your EV lease, now is the right time.
How Do Tax Deductions on Electric Cars Work?
Owners of some plug-in electric vehicles may be eligible for tax deductions when they confirm their status as taxpayers. They must have started driving the cars in the same year they claimed the tax credits.
In the case of leased electric cars, the tax credits usually go to the lease companies rather than the drivers of the leased cars.
This means to enjoy tax deductions on your electric car lease, the company offering the lease will have to factor the tax credits into your monthly payments. The result? Cheaper repayment amounts.
One reason customers must choose reliable lessors like Lease Loco is that they ensure customers enjoy deserved benefits.
Understanding the Tax Benefits That Can Come With Your EV lease
Most tax reduction schemes do not apply to the lessees but go to the lessors. You should bring up the tax credits while negotiating your lease to benefit from the deductions. You can save money only if you understand how these incentives work.
1. Business Leases and Tax
One benefit of taking a company lease on an electric or hybrid car is that the total monthly payments count as deductible expenses. If the car has emissions of 50g/ km or less, the monthly payments can be set against profit, resulting in a reduced corporation tax payment.
2. Leasing Electric Cars and Benefits in Kind
Benefits in Kind (BIK) cover incentives that employees give to their employees but which are not part of their salary.
Some examples are preferential loans, company car, childcare expenses, etc. Luckily for lessees, BIK regulations favour both electric and hybrid vehicles.
When employees use the company car, BIK rules cover it. This means the tax calculations will be done the same way as they apply to an electric vehicle the company buys.
Note that the vehicle’s list price will be used to calculate the BIK rates and not the rental amount. The tax rate will be higher with hybrid cars than with zero-emissions electric vehicles, but you will enjoy tax savings either way.
3. Electric Car Leases and VAT
You can enjoy VAT savings when you lease an electric car, especially if the car is being used solely for business. It’s possible to claim all the VAT charges in this situation, but the challenge comes with proving that the vehicle has not been available for personal use.
Since proving that may be difficult, consider focusing on reclaiming some portion of the VAT.
4. Vehicle Excise Duty
Road tax is calculated based on the vehicle’s CO2 emissions, list price, and registration year. VED does not apply to electric cars. With hybrid vehicles, the tax exemption takes effect in the initial year, and you get reduced payments for the remaining period.
Do All Electric Cars Qualify for Tax Deductions?
The criteria that vehicles have to meet to qualify for tax deductions are sometimes loose. Some universal ones include the car having four wheels and being a plug-in.
Most passenger vehicles easily meet these qualifications. All fully-electric vehicles are eligible, but hybrids that are not plug-in may not qualify for tax reductions.
How Often Can You Claim Deductions on Electric Vehicles?
You get to enjoy the tax deductions only once for each eligible vehicle. You must also claim the tax credits within the same year you buy and begin using the electric car.
If you buy another vehicle that qualifies in the same year, you can get the tax benefits still. So long as they are separate vehicles, the tax claims will be available.
The manufacturing rate of green vehicles is on the rise, so tax reductions on leased electric cars will not be disappearing soon. Your leasing company may not transfer the total incentives to you but expect to see significant tax savings.