As businesses explore ways to be ‘greener’, organisations look to employ a tax regime that encourages zero or low emission vehicles.
So, what exactly are the tax benefits? We look at some more commonly asked questions from clients wanting to understand the tax advantages of electric vehicles (EV) or e-bikes.
How do you calculate the benefit in kind for electric vehicles?
A company car’s taxable ‘benefit in kind (BIK) is determined by its list price and C02 emissions or electric range. The BIK is subject to income tax (employee) and Class 1A National Insurance Contributions (NICs) for the employer. The employee must have the BIK listed on their P11D.
The benefit percentages for EVs in the tax year 2022/23 range from 2% for cars with an electric range greater than 130 miles up to 14% for vehicles with an electric range of fewer than 30 miles. You multiply this percentage by the list price (plus certain accessories) to determine the taxable benefit in kind.
The benefit to the employee is taxed at their personal tax rate.
Is there a mileage allowance on electric vehicles if I charge my company car at home?
The current rate is 5p per mile for fully electric cars and is known as the Advisory Electricity Rate (AER).
If an employee travels 8,000 miles in their company EV, they can receive £400 in mileage tax and NICs free over the tax year.
However, there are no specific rates for hybrid cars. HMRC suggests hybrid car drivers use advisory fuel rates according to the engine fuel amount.
What about electricity provided by employers for private mileage. Is there an additional benefit in kind?
No. There is no taxable car fuel benefit if you are providing electricity for all employees for their electric car at the workplace, regardless of whether the electricity is for business or private mileage purposes.
What about if employees own an electric car personally. Can they be paid for business mileage?
Employees who use personal EVs for business purposes can claim their mileage too.
Known as approved mileage rates and like a petrol or diesel car, these are claimed at 45p per mile for the first 10,000 business miles. Any subsequent mileage incurred is claimed at 25 per mile.
Are capital allowances available?
Expenditure incurred on purchases of new and unused, fully electric cars (0g/km of C02) is usually eligible for a 100% first-year allowance (FYA). This allowance is also available on expenditure via several car leasing contracts. The classification of leases for tax purposes can be complex.
If you are entering into an electric car lease and have tax queries, we recommend you contact us for guidance.
Is VAT claimable on electric vehicles?
Current law dictates we view electric vehicles as a car for VAT purposes. Therefore, if you use EVs for private purposes, VAT is not recoverable on the purchase.
However, if the electric vehicles are 100% for business purposes, you can claim VAT. Although, this is difficult to prove to HMRC.
Similar restrictions apply to leased cars. If you use a leased car for private purposes, only 50% of the VAT on the leasing charge is recoverable.
Can electric cars be provided as a salary sacrifice scheme?
No benefit in kind is assessable if the CO2 emissions of company cars provided through salary sacrifice schemes are less than 75g/km.
Do I need to install EV charging points?
If you install new and unused EV charging points before 31 March 2023, you can claim the 130% super deduction for costs.
If your company allows employees to charge personal EVs at work, there are no taxable benefits for providing free electricity.
Do I have to pay road tax for my electric car?
Often referred to as ‘road tax’, we mean vehicle tax – a tax most car owners must pay depending on the carbon dioxide emissions of their car.
If you have a pure electric car, you are exempt from vehicle tax. However, hybrid cars are liable for vehicle tax. The amount you pay can vary between £0 – £155 each year depending on your C02 emissions levels.
Was your car registered between 1 March 2001 and 31 March 2017? If yes, and it produces less than 100 g/km of C02 emissions, your vehicle is tax-exempt.
Initially buying a fleet of EVs may seem expensive, but in the long run, they can be a cheaper alternative to petrol or diesel cars, particularly given current fuel costs! They are friendlier to our environment and provide a tax-efficient solution for employers and employees alike.
We help our clients implement benefits strategies and employee incentives whilst mitigating tax risks.
If you want to know the tax advantages of electric vehicles, need help with payroll compliance or require tax advice, please speak to our employment tax team.
He has a portfolio of clients including non-UK resident company landlords, high net worth individuals, entrepreneurs, self-employed and owner-managed businesses. His support has helped individuals, owner-managed businesses, and large corporate groups utilise tax reliefs to run their businesses efficiently and meet their compliance obligations.
