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    Tag: ev

    Electric vehicles – is now the time to switch?

    Posted on by Laura Bannan

    Demand for electric vehicles (EVs) continues to increase, with sales representing 16.5% of all new car sales in the UK.

    Is now the right time to switch to an EV, and what are the benefits of doing so?

    Are EVs expensive to purchase and run?

    Initially, EVs are still relatively expensive to buy compared to their petrol and diesel equivalents.

    However, running costs of an EV are typically lower than petrol or diesel vehicles, particularly if you charge at home on an EV-friendly electricity tariff.

    Given the very nature of EV construction, and the lack of moving parts, servicing and maintenance costs should, in theory, also be lower than for petrol and diesel vehicles.

    Salary sacrifice and EVs

    From an individual perspective, there are a couple of tax advantages when opting for an EV.

    Employees may be able to take advantage of salary sacrifice arrangements, whereby they can choose to forego a proportion of their gross salary (i.e. before tax and national insurance), in exchange for their employer providing them with an EV.

    Because the cost of the EV is paid out of funds before tax and NIC, there can be significant savings that can be generated for both employees and employers.

    Benefits in kind

    Where employees are provided with EVs by their employer (even if through a salary sacrifice scheme), there are benefit in kind (BIK) issues to consider.

    The current annual BIK for an employee who is provided with an EV equates to 2% of the list price. From April 2025, the annual BIK rates will increase as highlighted below:

    Tax year                                                                                  BIK rate

    2025/26                                                                                         3%

    2026/27                                                                                         4%

    2027/28                                                                                         5%

    However, the BIKs on EVs are very low in comparison to petrol/diesel cars to further encourage uptake (diesel cars can have an annual BIK rate of up to 37% of the list price of a vehicle).

    Provision of charging points

    HMRC has amended guidance on the tax treatment of charging electric company cars and vans at home – confirming that if these costs are reimbursed by employers, they should not be treated as a taxable benefit for employees.

    This means that no separate charge to tax under the benefits code will arise where an employer reimburses an employee for the cost of electricity to charge their company EV or van at home, given that it can be demonstrated that the electricity was used for the sole purpose of charging a company vehicle.

    Increase to electric car advisory fuel rate

    The Advisory Electric Rate (AER) for reimbursing employees who drive company owned EVs increased to 9p per mile from March 2024, with a commitment from HMRC to review the rate on a quarterly basis.

    This means employees, including company directors, can be reimbursed for business travel up to 9p per mile on their company EV, without incurring any BIK.

    Vehicle Excise Duty (VED)?

    From 2025, the government will be introducing VED on EVs.

    New zero-emission cars registered on or after 1 April 2025 will be liable to pay the lowest first-year rate of VED (CO2 emission 1 to 50g/km) at a rate of £10 a year.

    From the second year of registration onwards, all zero-emission vehicles will move to the standard rate, which is currently £165 a year. This rate will also include zero-emission vehicles first registered between 1 April 2017 and 31 March 2025.

    In addition, there is the removal of the expensive car supplement exemption for zero-emission vehicles which will come into effect in 2025. The exemption currently applies to cars with a list price exceeding £40,000 for five years. Zero and low-emission cars first registered between 1 March 2001 and 30 March 2017 will move to the band B rate, currently £20 a year.

    Is 2024 the time to purchase an EV?

    If an EV is in your price bracket, and when looking at your average journeys, the range isn’t going to be an issue for you, then having use of an EV could be an excellent option (if tax is a main consideration).

    With advantages such as the availability of salary sacrifice, a low BIK rate, cheaper running costs and eco-friendliness, plus the tax efficiencies from an employer point of view, now may be a great time to switch to an EV.

    Get in touch

    If you would like to discuss the tax benefits of switching to an electric vehicle, please get in touch with Julie Walsh by clicking the button below.

    Are the tax benefits of EVs too good to be true? – Final Salary Pension Trap!

    Posted on by Sabeeha Zahieer

    If you are part of a final salary/defined benefit pension scheme, careful thought needs to be given to the impact that a salary sacrifice arrangement might have on your tax position, and your pension entitlement, if you are considering getting an EV through salary sacrifice.

    Lots of us are thinking about, and may have already made, the switch to an Electric Vehicle (EV).

    The hook of a generous tax saving as part of an EV provided through a salary sacrifice arrangement might seem too good to be true – and for some, it might be.

    Under an EV salary sacrifice arrangement, an employee’s gross pay is reduced by an amount equal to the cost of the EV lease.  As a result, their net (after tax/NI) pay would reduce each month and, overall, the cost to the employee of obtaining the car is less than it would have been had they simply paid for it out of their after-tax earnings.

    At the point that the salary sacrifice arrangement comes to an end, i.e., when the EV is handed back by the employee, they would most likely see their gross wages revert to the level that they were at pre-salary sacrifice (and possibly greater).

    For those who are part of a defined contribution pension scheme, this would not cause any tax issues. However, for those who are part of a defined benefit/final salary pension scheme, such as those in the NHS, those individuals may well feel the effects of this ‘increase’ on their gross pay via a possible pensions annual allowance charge.

    Many doctors, especially those on the higher pay scales, will be all too familiar with the hefty tax charges that they, and their pension pots, will have suffered over the past few years because of the way that the annual allowance tax charges are calculated for those who are part of final salary schemes, such as the NHS pension schemes.

    Their annual pension input payments, which are tested against the annual allowance, are calculated based on a formula which measures the capital growth of the pot each year. The formula considers movements in gross salary and the length that the individual has been in the pension scheme and is then subject to a multiple of 19. The effect of applying this multiple can mean that what may seem like relatively modest adjustments to gross pay can easily cause significant notional increases in the value of the pension pot each year and trigger annual allowance tax charges for these individuals.

    If these individuals wished to mitigate this potential annual allowance charge, they may choose to keep their EV through a salary sacrifice arrangement until retirement (if such arrangements continue to be available).

    However, if they were to continue to have an EV through salary sacrifice, they would need to understand that they would potentially be foregoing a significant level of pension/tax free lump sum through retirement as a result of having less gross pay each year up to the point of their retirement.

    Everyone’s circumstances will differ, and calculations can be undertaken to quantify the costs vs benefits of having, or not having an EV provided through salary sacrifice.

    The above highlights the fact that the income tax and NI savings offered by a generous salary sacrifice opportunity should not be the only factor that is considered when the employee in question is part of a defined benefit/final salary pension scheme.

    Get in touch

    If you would like to discuss the tax benefits of an electric vehicle through a salary sacrifice scheme in more detail, please contact Roger Phillips by clicking the button below.

    Plug-in grant for vehicles ends to focus on expanding EV charging network

    Posted on by Sabeeha Zahieer

    The government has ended the grant scheme for new orders of plug-in cars, as it looks to focus on the electric vehicle charging infrastructure. This is happening with immediate effect from 14 June 2022.

    Drivers could previously claim up to £1,500 towards the cost of a plug-in car costing less than £32,000. The grant was introduced as a temporary measure and successive reductions in the size of the grant, and the number of models it covers, helped an increasing number of buyers into electric cars. The government is now refocusing its funding into other areas. £300 million in grant funding will now be offered to boost sales of plug-in taxis, motorcycles, vans and trucks and wheelchair accessible vehicles.

    The government stated that reductions in the plug-in grant in recent years and the car models that it covers, have not hampered EV sales – with hope that now the market has been kickstarted it will continue to grow, especially with more access to the necessary infrastructure.

    ‘Range anxiety’ is now considered the largest stumbling block for pushing more drivers to go electric, hence the change in focus from government funding.

    Electric drivers will continue to benefit from zero road tax and lower company car tax rates that can save up to £2,000, the government has revealed.

    All existing applications for the grant will continue to be honoured and where a car has been sold in the two working days before the announcement, but an application for the grant from dealerships has not yet been made, the sale will also still qualify for the grant.

    The government is also planning to adopt a zero emission vehicle (ZEV) mandate, which will require manufacturers to sell a certain percentage of those cars and vans from 2024 with the sale of new petrol and diesel cars and vans in the UK being banned from 2030.

    What does this mean?

    The company car tax, also known as Benefit-in-Kind (BiK), on electric cars is just 2% in 2022/23, and will remain the same for the next three financial years (up to April 2024) so there are still savings to be made compared to running petrol or diesel-engined cars, which can incur BiK rates up to 37% based on their emissions. With the loss of the incentive, careful consideration and a thorough comparison should be given to the costs of purchasing a vehicle (electric or otherwise) and how much tax the company and the employee each pay depending on the vehicle’s value, its CO2 emissions and the income-tax bracket of the employee.

    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.