Aside from the environmental benefits, there are now significant tax incentives for opting for an electric company car.
New benefit in kind rates for pure electric company vehicles came into effect from the 2020/21 tax year with a nil benefit in kind charge for the 2020/21 tax year and 1% and 2% for the 2021/22 and 2022/23 tax years respectively. These rates are not dependent on the age of the car. The benefit in kind rates for the tax years 2023/24 and 2024/25 will remain at 2022/23 levels.
On basis that some drivers may be concerned about the range that an electric car can travel on a single charge, the cost of the car and the availability of a charging port, it may be that a plug-in hybrid is an alternative option. The same benefit in kind rates will also apply to company plug in hybrid cars registered after 6 April 2020 and with emissions from 1-50g/km and pure electric mile range of 130 or more. The benefit in kind rate for hybrid cars registered before 6 April 2020 and those registered after 6 April 2020 with lesser electric range are not as attractive.
How does this compare to a conventional company car?
The percentage of list price of a company car which is taxed as a benefit is determined by the CO2 emissions of the vehicle. This can be a significant amount, particularly for higher and additional rate taxpayers, and/or diesel cars which currently attract a 4% surcharge for those cars not meeting the RDE2 standard.
To illustrate, for the 2020-21 tax year, two company car drivers, one with an electric car and the other with a petrol car, each car has a list price of £35,000 and the petrol car has 169gCO2/km (37% BIK rate) emission would cost the petrol car driver at 40% tax rate, £5,180 in tax whilst the electric car driver would pay no tax.
- Since electricity is not considered fuel for tax purposes, there is no car fuel benefit charge.
- Furthermore, there is no taxable benefit where an employer allows company owned cars to be charged from a work charging point or pays for a charge card of £100 per year to allow employees unlimited access to a local authority vehicle charging point;
- If the employees pay for the electricity themselves to charge the company car at their home, the company can pay them 4 pence per mile for any business travel;
- Low emission plug in grant is also available up to a maximum £3,000 for vehicles with CO2 emissions less than 50g/km that can travel 70 miles without any emissions at all. The dealer will include the grant in the vehicle’s price;
- There are also grant schemes available for electric vehicle charging infrastructure which includes Electric vehicle home charge scheme with up to 75% funding towards the cost of installing the electric vehicle charge points at domestic properties. There is no taxable benefit either on the employees or the company if the company pays for the vehicle charging point to be installed in the employee’s home. There is also a workplace charging support scheme for the company.
- There is no road tax until at least 2025.
What are the tax benefits of an electric company car for an employer?
Cars that emit no more than 50g CO2 per kilometre currently qualify for a 100% first-year allowance where the car is purchased new and unused, meaning that the full cost of the car can potentially be set off against business profits, creating a significant saving for an employer.
Depending on the size of your fleet, the above savings can be further enhanced for both the company and employees by considering a Salary Sacrifice arrangement.
Want more advice on the tax implications of an electric company car? If so, please do not hesitate to get in touch with our employment tax experts today.