As more and more businesses consider more sustainable and eco friendly ways to operate, we are seeing an increase in the acquisition of electric cars.
But what are the tax rules surrounding these vehicles?
The provision of a company car that is available for an employee's private use will usually attract a benefit in kind charge. As such, the benefit will be subject to income tax (for the employee) and Class 1A National Insurance Contributions (NICs) for the employer.
The tax and NICs are based on a percentage of the official price of the car plus certain accessories, this percentage being primarily determined by the car's CO2 emissions.
The benefit on the employee is then taxed at his or her appropriate personal tax rate.
For tax year 2020/21, the percentage used to calculate the benefit on fully electric cars with zero emissions was 0%.
For tax year 2021/22 this increased to 1% and then increases to 2% for years 2022/23 to 2024/25.
For cars with emissions below 50g CO2/km, the percentage will be based on the electric range of the vehicle and the registration date.
As electricity is not a fuel, there is currently no employee fuel benefit charge on electric cars, and thus no Class 1A NIC charge for the employer.
However, there are special issues relating to the recharging of the battery of an electric car.
If an employer provides a company electric car, they can pay for recharging the car without a benefit in kind. They can also pay for a charging point to be installed at an employee’s home, if the electricity is also paid for by the employer, without a benefit in kind arising.
Where an employee uses their own electric car for business and their battery is recharged from a charging point at work or from an employer-installed charging point at the employee's home, then a taxable benefit will arise based on the cost to the employer.
Further advice should be sought on the specific circumstances if employers are looking to provide this to employees.
The current Advisory Electricity Rate for fully electric cars is 4p per mile.
Therefore, if an employee provides the electricity and travels 1,000 business miles in their fully electric company car, they can make a mileage claim for £40 without any tax or NIC being due.
Where an employee uses their own electric car for business mileage, they can claim an Authorised Mileage Allowance, and, if the employer pays less than the published rate the employee may claim Mileage Allowance Relief.
For expenditure incurred on new and unused fully electric cars and new and unused cars with less than 50g/km of CO2 emissions, 100% first-year allowances are available.
Leased electric cars do not qualify for this allowance.
From 6 April 2021 this changed, and only fully electric cars (0g/km of CO2) will have the 100% first-year allowance available.
A company cannot reclaim the VAT on the purchase of a company car, even if it is an electric car.
However, there is a Plug-in-Car grant administered by the Office for Low Emission Vehicles (OLEV) which is paid directly to the car manufacturer to discount the price of approved vehicles. This does not apply to all low emission cars, only those approved by the government.
The above is a brief overview of the main tax implications of company electric cars. This is not an exhaustive guide and it can be a complex area. Any decisions should be supported by professional advice appropriate to your personal circumstances.
If you have any queries or require our assistance in reviewing the benefits you provide to your employees, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team.
For more information on employer issues check out our Employer Solutions Knowledge Hub.