Electric vehicles – the tax considerations

Dave Hedges profile image

Dave Hedges, Employment Tax Partner

Dave is an employment tax specialist with more than 30 years' experience.

Feb. 25, 2020

 Electric Car - Tax insight (cropped)

Now looks like a good time to invest in electric vehicles for both employers and employees to benefit from tax breaks and grants.

There is no denying that electric vehicles have and will continue to become more commonplace on our roads. Technological advancements have made them a more viable and affordable proposition than in prior years. Drivers are now able to benefit not only from cleaner and more efficient transport, but also from increased range and even improved performance when compared with conventional petrol or diesel alternatives. In an effort to be environmentally friendly, employers are now acquiring electric vehicles as part of a fleet or as company cars. An added benefit is also the reduced running costs.

From a tax perspective, now is arguably the ideal time for businesses to consider ‘going electric’. For employees, reducing Benefit in Kind (BIK) rates down to 0% in the 2020 tax year for pure electric cars has strong appeal given the trend for increasing BIK percentages for petrol, diesel and even most hybrid cars. For employers, generous Capital Allowances are available, not only for the purchase of electric vehicles but also for the installation of charging points.

It is clear that the UK Government is currently keen to incentivise the public and businesses to consider zero-emissions vehicles. Should electric vehicles become the default choice, the need for the Government to incentivise adoption will cease, and potentially so will the reliefs available that we see today.

We have outlined below the tax considerations and provisions in relation to using an electric vehicle(s) for your business.

Employee Benefit in Kind

Plans have now been announced to drop the BIK rate for electric vehicles from 16% currently to 0% effective from 6 April 2020 with a commitment to only increase to 1% in 2021 and 2% in 2022 an annual average of only 1%. This applies not only to pure electric vehicles but (where the vehicle is registered after 6 April 2020) also to vehicles with CO2 emissions of up to 50g/km and at least 130 miles of electric-only range. On a £30,000 car, when compared with typical BIK rates (circa 25%) for non-electric vehicles, this would result in an annual tax saving for higher rate taxpayers of c. £3,000.

The position favours electric vehicles even further when we consider the provision of personal fuel. As with BIK percentages, the standard amount against which a personal fuel benefit is assessed has increased from £21,100 in 2013/14 to £24,100 in 2019/20. For electric vehicles provided as company cars, there is no taxing provision for private charging as “fuel” does not extend to electricity. Similarly, workplace charging (for private and company cars) will not give rise to a benefit in kind.

Taking this a step further, s149(4) ITEPA 2003 extends the exclusion from the company car fuel charge to any ‘facility or means for supplying electrical energy’. This means that an employer can, for example, pay for the following without a taxable benefit arising:

  • A vehicle charging point to be installed at the employee’s home.
  • A charge card to allow individuals access to commercial or local authority charging points.

It should be noted that these particular provisions only apply to company cars (which would otherwise have been subject to the fuel charge) and not in respect of electric cars owned privately and used for business.

The Optional Remuneration legislation introduced in April 2018 in relation to salary sacrifice arrangements does not apply to ‘ultra-low emissions vehicles’ (ULEVs) for which electric vehicles fall within. This provides flexibility to employers wishing to utilise a salary sacrifice company car scheme.

Reimbursements for Business Mileage

One factor discouraging adoption of electric cars for company car drivers may have been the lack of a provision for the reimbursement of electricity costs incurred personally by an employee in carrying out business travel. From September 2018 however, HMRC introduced advisory fuel rates (AFRs) for electric vehicles allowing employers to reimburse electricity costs at a rate of up to 4p per mile. Where it can be demonstrated that a higher cost has been incurred, an increased rate may be able to be paid on agreement with HMRC.

It is also worth remembering that Approved Mileage Allowance Payments (AMAPs) apply to electric cars in the same way as for petrol or diesel cars. For individuals using a private electric car for business purposes, reimbursement can still be provided tax-free at a rate of 45p per mile for the first 10,000 miles and 25p per mile thereafter. Furthermore, where the employee is reimbursed at an amount lower than this, they can claim tax relief on the difference from HMRC.

Capital Allowances

Aside from the employee/employer considerations, there are also benefits to adopting electric vehicles from a business tax perspective, specifically the availability of enhanced capital allowances (ECAs).

New electric vehicles (and some hybrids) are eligible for first year allowances (FYAs) of 100%, comparing favourably with other cars ordinarily subject to writing down allowances of 18%/8%. Where we are considering fleets of vehicles, this could provide significant relief.

These ECAs are also available to expenditure incurred upon the purchase and installation of new and unused equipment for an electric vehicle charging point solely for charging electric vehicles. The ECAs for expenditure on charging points was due to be withdrawn on 31 March 2019 (for corporation tax) and 5 April 2019 (for income tax), however availability was extended for four years and will now expire on 31 March/5 April 2023.

What should you do next?

For further information on the areas raised in this Insight, or to discuss in more detail, please speak with your usual Wilkins Kennedy contact or a member of our tax team.


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