What are the business tax benefits of switching to electric vehicles? In this blog Tim Palmer, ABG’s Tax Consultant takes a look.
Petrol has peaked, as half of drivers are considering switching to a fully electric car! The government aims to cease the sale of petrol and diesel cars by 2030. The switch away from petrol and diesel vehicles is really gathering pace. The sales of electric cars have now overtaken diesels, being one in every five new vehicles sold.
The tax position of an employee with a fully electric company car is now truly fantastic! Previously, for 2019/20, fully electric company cars were taxed at 16% of the list price. However, significant reductions in the taxable benefits of electric cars were made from 6th April 2020.
For instance, the 2019/20 taxable benefit in kind charge for a £70,000 Jaguar I-pace (all-electric car with a 298 mile range) was £11,200, and from 2020/21 this was reduced to nil. This was an amazing tax-free perk, but it was for one year only…
|2020/21||Nil (previous tax year)|
|2021/22||1% (current tax year)|
|2022/23||2% (next tax year)|
Accordingly, the taxable benefit currently is 1% x the list price. The chancellor also confirmed that employees with fully electric company cars would be taxed on the 2022/23 benefit in kind rates of 2% for 2023/24 and 2024/25.
If an employee has a company car provided by their employer for them under salary sacrifice, the taxable benefit is the higher of the amount of the salary given up or the taxable car benefit. However, the salary sacrifice anti-avoidance legislation does not apply if the company car has CO2 emissions of less than 75g/km.
It is therefore possible for an employer to provide fully electric and certain hybrid company cars, pursuant to a salary sacrifice arrangement, and for the employee to retain the tax benefits. This planning could also be carried out, in some cases, when an employee is provided with a second hand fully electric company car.
The government’s “plug in” car grant has been reduced from £2,500 to £1,500 from 15th December 2021. It is now only available for those electric vehicles costing £32,000 or less. The government grant is only available on the acquisition of brand new fully electric cars, not second hand ones.
Charging the electric cars: The benefits in kind position
|Provision||Company car made available for private use||Employee’s own car used for business|
|Employer allows cars to be charged up from a vehicle charging point at work||There is no taxable benefit||Generally, no taxable benefit arises. However, various conditions apply.|
|Employer pays for a vehicle charging point installed at the employee’s home||There is no taxable benefit||There will be a taxable benefit based on 20% of the cost to the employer|
|Employer pays for charge card to allow individuals unlimited access to third party charging points||There is no taxable benefit||There will be a taxable benefit based on cost to the employer|
Further comments on electric vehicles
Is switching to electric vehicles the future? By 2026, electric vehicles are expected to account for a 5th of all vehicle sales. Additionally, the ban on the sale of new petrol and diesel cars has been advanced to 2030.
If a business buys a brand new and unused electric company car, they will get a 100% FYA on the purchase. Second hand electric cars go in the main 18% plant pool.
SDFYAs 130% (from 1/4/2021 to 31/3/2023)
The SDFYA is not available to electric cars. But it does apply to commercial electric vans, lorries and charging points.
VAT on charging points
VAT incurred on charging points supplied to the business (at their premises) can be recovered. However, if the business pays for the installation of a charging point at the employee’s home, then the VAT cannot be recovered. The charging point has been supplied to the employee.
Capital Allowances for the fully electric and low emission company cars
|0 – 50g/km||100% FYA|
|51g – 110g/km||18%|
|Zero g/km||100% FYA|
|1 – 50g/km||18%|
To qualify for the 100% FYA, the car must be purchased new and unused.
A second hand electric vehicle does not qualify for a full tax deduction on purchase but instead gets a deduction of 18% per annum on a residual balance basis.
If you wish to speak to a member of ABG’s corporate tax team regarding the business benefits of switching to electric company vehicles please contact us on 020 7330 0000.