As more and more people choose to buy electric cars over petrol and diesel, employers should be aware of the tax benefits that both they and their people can achieve by using electric vehicles.
Helpfully, HMRC are keen on helping taxpayers reduce their “carbon tyre-print” and have in place a range of tax measures designed to help employers, employees and the self employed to make the change.
Tax benefits of electric cars for companies
Companies who purchase electric vehicles currently qualify for 100% capital allowances in the first year – i.e. tax relief is given for the full price of the car in that year. The same is true for the cost of purchasing charging points, which may be near the workplace or at an employee’s home. Generally, both the car and any charging points are included in the main capital pool for companies, so there is no balancing charge claw back of tax to worry about when the car is disposed of.
Employers will pay Class 1a on the benefit in kind value of the vehicle – see the example below, but not in most cases on the cost of providing a charging point and/or electricity for a company owned vehicle, although care must be taken with providing charging for non-company owned vehicles.
In addition to getting full relief for the cost of the car, full tax relief is available each year for the cost of insuring and maintaining the vehicle, as would be the case with a petrol or diesel fuelled equivalent, and this is not treated as an additional benefit in kind on which NIC would be due.
Sadly, VAT is not recoverable on electric cars unless there is no private use, which is hard to argue in most cases, especially for owner managed businesses. 50% of any VAT paid on leased cars may be recoverable though and VAT is fully recoverable on commercial vehicles purchased by the company.
Tax benefits of electric cars for employees
You may be provided with a company car as part of a standard package, but you may also be able to request this as part of a salary sacrifice arrangement.
As part of a standard package, an electric vehicle will invariably be a lot more tax efficient than a petrol or diesel vehicle as the benefit in kind rates, illustrated in the example below, are much lower. Fully electric vehicles with 0 g/km emissions benefit from a 2% charge. Even the greenest petrol vehicles will attract a 14% charge with diesel attracting an even higher rate of 18% as a bare minimum.
If company cars are not provided as standard, your employer may allow you to opt to sacrifice some of your salary in favour of being provided with an electric vehicle that it leases on your behalf. If you are already considering leasing an electric car personally, salary sacrifice could provide both you and your employer with a significant saving, as the tax paid on a car is based on a deemed benefit in kind value, and not the monthly cost to your employer or the amount you sacrifice. You will therefore usually pay tax on an amount lower than you have sacrificed and escape NIC on the sacrificed amount.
There is no taxable benefit if your employer provides you with use of a charging point at or near your work place, or pays for a charging point at your home. They could also provide you with a charge card to pay for charging the car through a third party supplier.
The rules are different if you own the car personally and your employer provides or refunds the cost of charging, and the cost to do that would be treated either in full or in part as a taxable benefit in your hands.
Tax benefits for the self employed
Self employed people who purchase electric vehicles for their business benefit from owning electric cars in a slightly different way. There is no need to calculate benefits in kind, but you will be able to claim capital allowances in the same way as a company. The only difference is that the vehicle will need to be separately pooled and a private use adjustment made, as for any other business owned asset you may be able to use personally. The business can claim relief for the cost and upkeep of the vehicle, again, subject to a private use adjustment if you are using the vehicle yourself.
If you have employees, then providing electric vehicles to them will work in much the same way as it does for a company.
HMRC calculates the benefit in kind value of a vehicle based on percentage of its list price, which is determined by its emissions, and for electric cars which have emissions over 0 g/k, its electric range. The relevant percentages for 2022/23 are as follows:
|CO2 emissions (g/km)||Electric car range (miles)||% of list price|
A Smart EQ Fortwo with a list price of £22,250 and a range of 81 miles will attract an annual benefit in kind of 2% because it has 0 g/k emissions. Its taxable value would be i.e. £445.
The tax consequences would be as follows:
- Income Tax payable by the employee (assuming higher rate taxpayer) – £178 per annum.
- Class 1a NIC payable by the employer – (15.05% to include the social care levy from 2022/23) – £67 per annum.
- Company Tax Relief for Capital Allowances (excluding charging point) in the first year at 19% – £4,228 saved
- Self Employed Tax Relief for Capital Allowances (excluding charging point) in the first year for higher rate taxpayer with 20% Private use – £7,120 income tax saving and £578.50 Class 4 NIC saved.