Electric cars represent a cleaner, greener way to use everyday transport, but they also offer compelling financial incentives for business and personal users. PM+M tax manager, Julie Walsh, highlights the benefits of switching to an electric vehicle in our latest bog.
What are the main benefits of purchasing an electric/ultra-low emission vehicle?
- No fuel duty – fuel duty is applied to combustible fuels but not electricity. Plug in electric vehicles and hydrogen fuel cell vehicles do not incur fuel duty for the electricity they use.
- Vehicle Excise Duty (VED) exemptions – There are new rates of VED for vehicles registered on or after 1 April 2018. Zero emission vehicles are exempt. Plug-in hybrids are subject to modest VED and any plug-in hybrids that cost £40,000 or more are subject to pay an annual supplement for 5 years (starting from the second time the vehicle is taxed).
- Reduced levels of VAT – Electricity used to recharge a plug-in vehicle at home currently attracts only a 5% level of VAT. This is much lower than road fuels which are charged at 20%.
Are there any additional benefits for electric/ultra-low emission company car users?
Electric cars attract low Benefit-in-Kind (BiK) tax rates, which means company car drivers could achieve significant savings by choosing a plug-in electric or plug-in hybrid vehicle.
Currently, ultra-low emission vehicles (ULEVs) are split into two bands for company car tax, and they are charged at a lower rate based on the list price. From 2020-21, these bands are further split based on zero emission mileage distance. Basically, the more electric miles the vehicle can travel, the lower the benefit-in-kind.
As electricity is not a fuel, there is currently no fuel benefit charge for battery powered electric cars. This applies to company car users who charge their vehicle at work.
However, if an employer requires an employee to have a charging point at home for a company owned vehicle, this will not give rise to a benefit in kind. However, if a charging point is provided for a personal vehicle, then a benefit will occur.
Find out more about by using HMRC’s company car and car fuel benefit calculator here.
How does the provision of fuel differ?
- If the employer provides fuel
If an employee uses an electric/ultra-low emissions company car, no benefit-in-kind arises on charging their vehicle at the workplace. However, if the employer reimburses the employee for electricity used at their home address, then this will give rise to a taxable receipt.
Additionally, if fuel is provided for a hybrid vehicle, then the normal fuel benefit charges arise, dependent on whether the car uses petrol or diesel.
- If the employer does not provide fuel
The situation for hybrid company cars is relatively straightforward – the normal diesel and petrol advisory fuel rates (AFRs) can be used to reimburse employees for business travel where the cost of fuel (whether petrol, diesel or electricity) was incurred personally.
However, this becomes much more complicated for individuals who use pure electric company cars. As noted above, tax law does not treat electricity as a fuel. This means that, where an employee charges a pure electric company car themselves, their employer cannot use AFRs to reimburse them. An agreed rate of 4p per mile has now been agreed to reimburse electric business miles where the employer does not provide an alternative means of providing the fuel.
- If the employee owns the electric vehicle
If the employer pays for the employee’s own electric car to be charged away from the workplace, the cost or reimbursement will be taxable as earnings.
However, if the employee uses their own electric vehicle for business journeys, they can be paid the usual tax-free allowances or they can make a claim for the amount on their tax return as an allowance.
How will an employer benefit from electric company cars?
Businesses who purchase, and use, low emission electric vehicles in their fleet could benefit in the following ways:
- Cars with CO2 emissions of 0g/km are eligible for 100% first year capital allowances against corporation tax in the year of purchase (provided the vehicle is new). For example, if a vehicle was to cost £40,000, this could amount to tax relief of £7,600 in the first year.
- Inclusion of vehicle running expenses such as electric charge, insurance, and repairs under allowable vehicle expenses
- National insurance savings on the reduced Benefit-in-Kind
- The Workplace Charging scheme (WCS) grant can provide financial support towards the up-front costs of buying and installing electric car chargers for businesses, find out more by clicking here.
Get in touch
For further advice regarding the tax implications of switching to an electric/ultra-low emission vehicle, please get in touch with Julie Walsh by clicking the button below.