Now that Covid restrictions have been lifted and life is returning to ‘normality’ again, you might be considering whether to switch to an electric car, or maybe you fancy commuting on an e-bike? There are a wide range of tax benefits available now for zero or low-emission vehicles (with 2 and 4 wheels) and this article explains what’s on offer if you choose to finance the investment through your company.
Calculating ‘benefit in kind’ for electric cars
Firstly, the taxable ‘benefit in kind’ of a company car is determined by the vehicle’s CO2 emissions. For the 2019-20 tax year, low emission cars (classed as up to 50g/km) were taxed at 16% of the list price, or 20% for diesel cars.
From April 2020 the tax charge for electric-only cars fell to 0% but for 2021/22 it increased to 1% and then further increases to 2% for 2022/23. There have also been reductions for electric hybrids, depending on their electric-only range. For example, a vehicle costing £36,000 with CO2 levels of 32 g/km and an electric only range of between 30 and 39 miles will have a benefit rate of 12% in 2021-22 and be classified as having a taxable benefit of £4,320. This is the benefit value that needs to be included on the P11D form for company cars.
Salary sacrifice and e-cars
It is possible to finance an electric car through a salary sacrifice scheme, whereby the amount of benefit is valued as the higher amount of either the amount of salary given up, or the taxable benefit. This is part of the ‘optional remuneration rules’ and they only apply in situations where the company car’s CO2 emissions are greater than 75g/km. Salary sacrifice can be a good option for higher and additional rate tax payers to reduce their marginal rate of tax.
Benefits and electric vans
Investing in an electric van is highly tax efficient if you may also require it for private use. As from April 2021, there are no tax implications if you use a company owned zero-emission van outside of business hours. If you have a non-electric van and are only using it for business and commuting purposes, there is no taxable benefit in kind consideration.
Electric Bikes
E-bikes are interesting in terms of their tax efficiency because they can potentially qualify for the Cycle to Work scheme – this operates outside of the P11D regime.
The qualifying rules have been relaxed until April 2022 to ensure the scheme remains relevant for those working from home as a result of Covid and the lockdowns. According to the relaxation, participants must use their e-bikes for work journeys at least 50% of the time; this applies to anyone already in a scheme on or before 20 December 2020 and runs until April 2022.
Note an e-bike is classified as having an electric motor, which is different to a motorbike or a moped and it should have a top speed no greater than 15.5 mph and offer less than 250 watts in power. Anything above this level is classed as a motorbike or moped for tax purposes. There are no additional tax advantages for having an electric motorcycle and the benefit in kind rules operate in exactly the same way as a petrol-powered motorbike.
Tax for electric vehicles
A further incentive to investing in an e-vehicle is the road tax payable (Vehicle Excise Duty – VED). The rates for all 100% electric vehicles are now £0 and this will apply until at least 2025. Plug-in hybrid electric vehicles (PHEVs) have reduced rates, but some VED is payable depending on emissions.
Capital allowances, super deductions and e-vehicles
To help stimulate automotive sales the government extended the 100% first year capital allowances relief post April 2021 for purchases of brand new, zero emission electric vehicles and vans. This means that subject to profits being available, the full cost of the car can be claimed in the year of purchase, with no upper restrictions to the value of the vehicle.
A further incentive was introduced in the March 2021 budget with the new super-deduction capital allowance. This offers a 130% first-year allowance on qualifying electric charging points for cars and vans. To qualify, the company must use the charging point in their own business. The super deduction will be available until 31 March 2023. Note there are some implications for future corporation tax payments when companies make use of the super deduction – refer to our earlier blog for more information.
Government grants for plug-in vehicles
To promote electric vehicle adoption, the government is offering grants of up to £2,500 towards the cost of an eligible plug-in vehicle. There is a £3,000 grant for small vans of less than 2,500 kg gross vehicle weight and a £6,000 grant for large vans between 2,500 kg and 3,500 kg gross vehicle weight.
This grant only applies for vehicles that cost less than £35,000 and is available at the time of purchase. To qualify, the vehicle must have an electric range of at least 70 miles and for hybrids, it must also have combined CO2 emissions of 50g/km or less. Full battery electric vehicles (BEVs) will typically qualify for the grants, but the majority of PHEVs will not be eligible.
Tax relief for electric car charging
If your business installs charging points for electric vehicles between now and 31 March 2023, 100% first year allowances can be claimed on the investment cost. In addition, if you allow your employees to charge electric vehicles at your workplace for free, this does not count as a taxable benefit in kind for P11D purposes. The qualifying condition is that charging facilities are located either on or near the workplace premises.
Additionally, when an employer pays for the cost of charging company electric vehicles (car or van) themselves, this falls outside the usual fuel benefit rules and there is no taxable benefit in kind. This applies both if the employer bears the cost directly, or reimburses the employee through their expenses. In the latter situation, the cost can be calculated through business mileage rates which can pay up to 4p per mile with no benefit in kind. Note this only applies to company-owned electric cars and not to private e-vehicles used for company business (see below – a different mileage rate applies).
VAT rules for e-vehicles
Electric vehicles are treated in the same way as any other car for VAT purposes and VAT is not recoverable when a vehicle is purchased. The exception to this rule is that the car is only ever available and used for 100% business purposes. When an electric vehicle is leased, 50% of the VAT paid on the leasing charge can be recovered.
Claiming expenses for using privately owned electric cars
Employees that use their private electric vehicle for business journeys are entitled to claim an annual, tax-free mileage allowance of 45p per mile for the first 10,000 miles driven and 25p per mile for any additional miles driven.
Employees are also eligible for grants under the Electric Vehicle Homecharge Scheme. This scheme contributes 75% towards the cost of a single charge point and its installation, up to a maximum of £350 per household for any eligible vehicle.
As this article outlines, there many tax advantages when businesses use electric vehicles and if you would like a more detailed discussion about your company’s plans, please get in touch via partners@rjp.co.uk