Is it time for an electric company car?

According to the Government's 'Ten Point Plan for a Green Industrial Revolution' the sale of fully petrol or diesel cars will be banned by 2030. A ban on the sale of hybrid cars is then set to follow from 2035. 

 

There are substantial tax benefits on offer over the next few years for employers who provide their employees with company cars they can use privately for making the switch to a pure electric car.

 

Capital Allowances

Businesses that want to buy a zero emissions or electric vehicle can benefit from 100% capital allowances until 2025, if the car they purchase is new. This means that provided the business makes sufficient profits, the purchase cost can be written off immediately in one year.

 

If the business opts to lease instead of purchase, the lease payments for an electric car are fully deductible against tax for the employer. However, VAT recovery is limited to only 50% of the VAT cost where the vehicle is used privately by the employee.

 

Benefit in Kind

Another major benefit is the reduced benefit in kind for both bought or leased electric vehicles. A taxable benefit in kind arises whenever an employer provides a car, which can be used privately by the employee. The value subject to tax is calculated as a percentage of the car’s official list price published by the manufacturer.

 

The percentage for diesel and petrol cars can be as high as 37%. In contrast, for 2022/23, the percentage for an electric car is only 2%, resulting in a much lower value for the taxable benefit in kind. This results in savings of income tax for the employee and Class 1A NIC for the employer.

 

It is still possible for an employee to give up salary for their electric vehicle via salary sacrifice without being caught by the Optional Remuneration Arrangements (OpRA) rules. Where an employee gives up some salary for an electric car or a hybrid with emissions of less than 75g/km of CO2, the employee can still only pay tax on the cash equivalent of the benefit in kind if this is less than the salary given up.

 

Charging Facilities

There are incentives for employers to provide workplace charging facilities. An employer paying to install electric charging equipment can claim 100% of the cost as a first-year allowance and they can recover the VAT is the chargers are installed at their business premises.  

 

There is no benefit in kind for the employee if they charge their company car at their work premises, even if they use that charge for private miles. This is very favourable over the petrol and diesel alternative where the benefit in kind cost for private fuel can be very expensive.

 

Provided the charging facilities are available to all employees, there is no benefit in kind applied to any employee who charges their electric car up at or near their workplace, even if the car is the employee’s private vehicle.

 

Where the employer has provided an employee with an electric company car, they can also pay to install charging equipment at the employee’s home without creating a benefit in kind charge. However, it is worth checking any deals or grants for charging equipment with the manufacturer first.  

 

The exclusion will not cover the cost of the electricity needed to charge the vehicle, unless the employer supplies the electricity. In the more likely case, the employee pays for the electricity used personally, then there are a couple of ways the employee can get relief for the cost of business travel only. Either, the employer can reimburse the cost of electricity using the Advisory Fuel Rates for company cars or the employee can claim tax relief at the same rate (although the value of the tax relief is worth less than a reimbursement).

 

Timescale

At present, the capital allowance benefits on the purchase of electric cars and installation of charging equipment, and the lower rate of benefit in kind on electric cars are set to run until March 2025. If employers want to take advantage of these benefits they should consider doing so sooner rather than later as there is no guarantee how long the benefits will be retained.