By Stuart Clark, MD, Russell & Russell chartered accountants
THE tax treatment of company-owned electric cars is not as simple as you would hope, but there are definite advantages, so it is worth considering if you are supplying vehicles to your employees.
There are an estimated one million company car drivers in the UK, accounting for nearly six out of 10 new car registrations every year. While the tax treatment on these vehicles is not always straightforward, the Government has attempted to boost the uptake of green models.
Here are five things to keep in mind if you are considering making the switch:
In the tax world, ‘benefit in kind’ is a benefit, such as a company car, with a monetary value. As such, it is subject to tax. The Benefit in Kind (BiK) rules are notoriously complex. In respect of company cars, the BiK is based on a calculation which brings together the car’s list price (not its value or the price paid for it), its C02 emissions and the user’s tax circumstances.
Best not to try working this out on your own: your professional adviser is best placed to guide you to an optimal outcome.
Drivers can be certain, however, that the BiK tax charge for a traditional, fossil fuel-based vehicle outstrips, significantly, the charge for an electric car or van. Indeed, for the current year, the fully electric car tax rate is set at zero.
Even in coming years, the rates will be remarkably light – 1 per cent in 2021/22 and 2 per cent the following year – but it is reasonable to assume that as more electric vehicles join the company car fleet, rates will rise again.
The takeaway here is: get professional advice. Tax on company cars is a tricky subject, but one that experienced accountants deal with every day.
It has been reported that as many as seven out of 10 drivers are aware of the Government’s Cycle to Work scheme which allows staff members to purchase a new bicycle from their salary before income tax and National Insurance have been deducted. However, less than 10 per cent are aware of a similar programme for cars that heavily favours electric vehicles.
Now known as Optimal Remuneration Arrangements, the salary sacrifice for electric vehicles has been around since 2016, ensuring the ultra-low emission vehicles (ULEVs) are as affordable as possible. The tax benefits have now mostly been removed for petrol and diesel-powered cars but remain in place for ULEVs.
Enhanced capital allowances
Provided the car is brand-new and purchased by the company, it will qualify for Enhanced Capital Allowances. This is a first-year allowance that lets your company deduct the full cost from profits before tax.
If you are not purchasing the car and are registered for VAT, then you can reclaim 50 per cent of the VAT on lease payments. You can claim 100 per cent if the vehicle is for business use only, as a taxi, for example.
If you install a charging point at work, this currently qualifies for the first-year allowance There is also no BiK for installing one at an employee’s home – although the installation is often covered by an energy efficient grant.
Improved infrastructure is on the way
Chancellor Rishi Sunak confirmed plans for investment to ensure that drivers of electric vehicles (EVs) will never be more than 30 miles away from the nearest fast charging point. He has committed the Government to a new £500m funding pot to be spent during the next five years to expand the UK’s rapid charging network for electric cars.
The fund is primarily designed to cover the cost of businesses installing charging points on their premises. The Chancellor also announced a £403m three-year extension to the plug-in car grant but cut the subsidy payment by £500 to £3,000 per car, as well as scrapping the pay-out for cars worth more than £50,000.
Government assistance is available
The Scottish Government offers interest-free loans to help with the purchase of new electric vehicles. These cover up to £35,000 of the cost of purchasing a pure electric or plug-in hybrid.
Applications for the Scottish Government’s interest-free loan should be made through the Energy Saving Trust. This loan is in addition to the UK Government’s Plug-In Vehicle Grant mentioned above, which now provides a maximum £3,000 discount at the point of purchase.