The tax benefits of electric vehicles

As electric cars become ever more accessible and the Government offering several tax advantages for low emission vehicles, their popularity continues to grow. Here we explain why switching your vehicle to an electric one can not only reduce your costs but also help to protect the environment.

P11D/Class 1A National Insurance Benefit

Electric Cars

Company cars provided to directors/employees are taxed based on the list price of the car multiplied by the level of CO2 emissions as a percentage (up to a maximum of 37%).

However, electrically propelled cars are subject to much more favourable treatment with benefits in kind (BIK) for full electric cars being calculated at 1% and 2% of the list price for the 2021/22 and 2022/23 tax years, respectively.

Vehicle CO2 2021/22 2022/23
0g/km 1% 2%
1-50g/km (electric range >130 miles) 1% 2%
1-50g/km (electric range 70-129 miles) 4% 5%
1-50g/km (electric range 40-69 miles) 7% 8%
1-50g/km (electric range 30-39 miles) 11% 12%
1-50g/km (electric range <30 miles) 13% 14%

 

Further, hybrid electric cars with CO2 emissions below 50g/km are subject to a favourable percentage when calculating the BIK depending on their electric only range. The relevant percentages for cars registered on or after 6th April 2020 are shown below:

Electric Vans

From April 2021, a zero-emission van is taxed at 0% of the benefit charge, therefore there is no BIK charge for an electric van regardless of use.

Capital Allowances

For new fully electrically propelled cars purchased from 1st April 2021, the expenditure incurred will be subject to a 100% First Year Allowance (FYA). Therefore, this will be an allowable deduction against the business’ tax in the year of purchase.

Cars that are not fully electric are usually subject to capital allowances in the special rate pool at a rate of 6%. However, from April 2021, cars with CO2 emissions between 1 and 50g/km are eligible for capital allowances via the main pool at 18% writing down allowances, further enhancing the tax benefits of providing electric cars to a director/employee.

Electric charge points and charging costs

Where a business installs charging points for electric vehicles up to 31st March 2023, it can claim a 100% FYA for these costs.

In addition, where the business provides charging at or near the workplace for its employees, there is no taxable benefit for the provision of the free electricity. This tax exemption does not apply if the employer reimburses the costs of charging the employee’s own vehicle away from the workplace, such as at a motorway service station.

Lastly, where an employer pays of the cost of charging a company-provided electric vehicle, there is currently no fuel benefit, as electricity is not considered as a fuel for BIK purposes.

Where the driver of the company-owned electric vehicle pays for the electricity to power it, either from their domestic supply or by charging at a roadside station, the employer may reimburse the employee for that cost. The employer can pay the company car driver 4p per mile, to reimburse them for the cost of the electricity used for business journeys with no tax implications. This rate only applies to company-owned electric cars, not to private vehicles.

 

If you want further advice on this or any other area, please get in touch at hello@chw-accounting.co.uk

 


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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