The tax system has, for many years, rewarded the purchase of low emission cars over their gas guzzling rivals.
Further, Boris Johnson has announced that there will be a ban on new petrol and diesel cars from 2030 onwards.
It is therefore no surprise that these tax benefits also arise for electric cars.
Is now the time to upgrade your company car (if you’re an employee) or the fleet (if you’re an employer) to battery power?
This note covers:
- The P11D position
- Capital allowances
- Case study – one man and his electric Porsche
- Government grants
- Case study two – normal car on lease payments
- Installation of charging points
Employees – Benefit in Kind / P11D
An employee who is provided with a Company car is taxed on a cash equivalent of the value of the car.
This cash equivalent is the ‘list price’ of the car multiplied by a percentage based on the CO2 emissions / electric range of the vehicle.
Those percentages are as follows:
|CO2 emission / Electric Range (“ER”)||2019/20||2020/21||2021/22||2022/23|
|0 g/km (Ie fully electric)||16%||0%||1%||2%|
|1-50g/km / over 130 miles||16%||2%||2%||2%|
|1-50g/km / 70 – 129 miles||16%||5%||5%||5%|
|1-50g/km / 40-69 miles||16%||8%||8%||8%|
|1-50g/km / 30-39 miles||16%||12%||12%||12%|
|1-50g/km / < 30 miles||16%||14%||14%||14%|
As can be seen, for fully electric cars, for the year 2020/21 (the current tax year) the benefit in kind is nil.
Employees – Salary Sacrifice
The provision of an electric car by an employer can also be funded by the employee sacrificing salary to cover the lease costs of the vehicle. Whilst not as outwardly attractive as a fully paid company car, for anyone wishing to use an electric car but is not eligible for a company car, then this can be used as an attractive option for the employer as it saves them Class 1 Employers NIC, as well as the employee receiving both PAYE and NIC on the cost of the effective lease compared to if they self financed the car.
Up until 1 April 2021, the Capital Allowance position for a Company acquiring an electric car is as follows:
|Emissions||100% FYA||18% Writing Down Allowance (“WDA”)||6% WDA|
|Less than 50g/km||•|
|51g/km – 110g/km||•|
|In excess of 110g/km||•|
Case study 1 – one man and his electric Porsche
Mr Naysmith, a director and shareholder of Doin’ Alright Limited fancied the new Porsche Taycan Turbo S.
The Company purchased this outright for Mr Naysmith’s use and paid the list price of £138,380.
In the tax year 2020/21, Mr Naysmith’s taxable benefit in kind will be Nil. In 2021/22, the cash equivalent will be 1% x £138,880 = £1,389.
The Company will be able to claim a First Year Allowance (“FYA”) of 100% for capital allowances purposes.
Government plug-in car grant
The Government’s provides something called the ‘plug-in car grant’.
This scheme is designed to encourage the uptake of electric vehicles in the UK.
The grant provides 35% of the purchase price up to £3,000 towards the cost of an eligible plug-in vehicle. However, the Company in our case study 1 will not qualify as the vehicle must cost less where than £50,000.
The grant is usually given as a discount from the vehicle’s purchase price, therefore it is not deducted when calculating the actual list price of the vehicle for benefit-in-kind purposes which would apply before the grant, or any other discount, is given.
There are two other main requirements:
- The car must have an electric range of at least 70 miles.
- Where the car is a plug-in hybrid then the vehicle must also have combined CO2 emissions of 50g/km or less.
A claim for capital allowances where a vehicle is purchased outright would be based on the actual cost of the car after the government grant and any other discounts had been applied.
Case study two
Mr Smith, the Sales Manager of Doin’ Alright Limited has been advised he can budget £350+VAT per month for the lease cost of an electric car.
The car has a list price before any government grant of £30,000.
In the tax year 2020/21, Mr Smith’s taxable benefit in kind will be Nil. In 2021/22, the cash equivalent will be 1% x £30,000 = £300. If he were a basic rate tax payer then he would only pay £60 a year in tax for the provision of the car.
The Company will be able to claim tax relief and input VAT on the lease payments based on the normal rules for the cost of leases where there is private use.
Doin’ Alright Limited also agrees to install an electric charging point at Mr Smith’s home, to which there is no benefit-in-kind.
Electric charge points & charging costs
The business may install charging points for electric vehicles at its workplace. Where such expenditure is incurred up to 31 March 2023, then the Company should be able to claim a 100% FYA for the installation costs.
It is worth noting that, where the company allows an employee to charge their own electric vehicles using a workplace charger, then there is no taxable benefit for the provision of that electricity even where provided free of charge.
The charger must be provided at or near to the workplace.
Further, if the employer pays for the cost of charging a company electric car there is no taxable fuel benefit for the driver. This is because electricity is not classified as ‘fuel’ for the purposes of the fuel scale charge.
The employer may reimburse the employee for the costs of charging the car – whether this is done through a ‘roadside’ charger or from their own domestic supply. Clearly, calculating the expense for the former is much easier than the latter. The solution is that the employer can pay the company car driver 4p p/mile without a tax charge arising.
As shown in Case Study 2, where an employee is provided with an electric company car, the cost of installing a charging point at the employees private home does not give rise to a benefit-in-kind. A government grant of up to 75% (capped at £350) is available to anyone who has to pay for the cost of purchasing and installing a charging point at their house.
An electric car will still be classed as a ‘car’ for VAT purposes.
This means that, as per normal, the VAT incurred on the purchase is generally not recoverable. The exception to this is where it can be shown that the car is only available and used solely for business purposes. This is a high hurdle to clear and, in practice, is rarely satisfied.
Where the electric car is leased then one can recover 50% of the VAT incurred.
It seems to us that the provision of an electric company car to an employee or director could be a very tax efficient method of providing a benefit.
Perhaps those dreams should be of electric cars after all…If you have any queries about this article then please do not hesitate to get in touch.