Electric vehicles tax benefits
Replacing your company vehicle with an electric vehicle offers several tax benefits that can reduce your costs and help protect the environment. The UK government has set a target to ban the manufacture of petrol, diesel and hybrid vehicles by the year 2030. From 2024, the Government is expected to require manufacturers to sell a certain percentage of zero-emission vehicles. To support the move, the Government has designed a tax regime designed to encourage the use of electric vehicles. In this article, we’ll look at the tax benefits of electric car purchases and what you need to be aware of when considering an electric vehicle.
Government Grants for electric vehicle purchases
Grants are available on the purchase of electric vehicles. They differ for cars and vans –
The government’s ‘plug in’ financial grant is designed to encourage and increase the purchase of electric cars in the UK. The grant is currently set at 35% of the purchase price, capped at £2,500.
In order to qualify for this grant, the following conditions apply. The car must –
- be brand new
- have CO2 emissions of lower than 50g/km
- be able to travel at least 70 miles without any emissions at all (its electric range).
- have a Recommended Retail Price of less than £35,000 – including delivery fees and VAT
All full battery-electric cars will qualify, but, in practice, very few hybrids will, as few of them have the required electric range. The onus is on the seller to reduce the vehicle’s price by the value of the grant.
Small vans – with a gross vehicle weight of less than 2,500kg
These qualify for a government grant of 35% of the purchase price, up to a maximum of £3,000. The grant will be given for vans that
- are brand new
- have CO2 emissions of less than 50g/km.
- can travel 60 miles without any emissions
Large vans – with a gross vehicle weight of between 2,500kg and 3,500kg
These attract a grant of 35% of the purchase price up to a maximum of £6,000, provided that
- they are brand new
- they have CO2 emissions of less than 50g/km
- they can travel 60 miles without any emissions at all
Capital Allowances for All-Electric Vehicles (AEVs)
There are generous capital allowance arrangements for AEVs (All Electrical Vehicles). There is a First Year Allowance (FYA) of 100% of the cost of the vehicle.
Capital Allowances for Hybrid Electric Cars
Hybrid vehicles don’t qualify for capital allowance at 100%. Instead, the allowance awarded depends on the emissions of the vehicle. These cars are allocated to a pool with reference to an emissions threshold. This currently lies at 50g/km for cars purchased on or after 1st April 2021.
Expenditure on a car within the emissions threshold is allocated to the main rate pool (18% Writing Down Allowance (WDA) each year). Expenditure on a car exceeding the threshold is allocated to the special rate pool (6% WDA).
Remember – if you sell the vehicle, your company will be taxed on the proceeds.
Benefit in Kind charges (BIK)
The BIK charges for electric vehicles are much lower than for petrol or diesel vehicles. For the tax year 2021-22, fully electric cars attract a BIK charge rate of just 1% of the list price of the vehicle. In his last budget, the Chancellor announced that the BIK rates for 2022-23, 2023-24 and 2024-25 will be 2%.
Here’s an example –
The all-electric Jaguar I-pace, with a range of 298 miles and costing £70,000, will attract a BIK charge for the current tax year of only £700. So, for a 40% taxpayer, the actual tax cost of your company providing you with the use of such a vehicle would be only £280 per annum. From April 2022 until 2025, this would increase to £560.
Hybrid vehicles are not as attractive – the BIK charge is dependent on the CO2 emissions and the electric mileage range of the vehicle.
Electric vans are becoming increasingly popular with directors and employees. There is a zero van benefit charge for employees who drive fully electric vans and use them privately.
However, not all ‘vans’ qualify as vans. HMRC is looking more closely now to ensure that what is being claimed to be a van is actually a van under the legislation. There have been claims that a Multi-Purpose Vehicle might qualify as a van. Currently, HMRC defines a ‘van’ as a mechanically propelled road vehicle which –
- is a goods vehicle and
- has a design weight not exceeding 3,500 kilograms and is not a motorcycle.
Electric Charging Points and Charging Costs
Electric charging at the workplace
If you install an electric vehicle charging point at your place of work, there are considerable tax benefits – namely, 100% FYA.
If you allow your employees to charge up their own electric cars at your workplace, then, irrespective of the level of the employee’s private mileage, there is no taxable benefit in kind. Electricity is not treated as fuel.
For this exemption to apply, the following conditions must be in place –
- The charging facilities must be provided by you at or near your workplace.
- The electric charging must be available to all your employees generally.
- The charging facilities must be for the battery of a vehicle in which the employee is either the driver or a passenger.
Electric charging at home
The government is currently offering a plug-in grant of £1,500, which the vehicle seller automatically deducts from the price of the car.
There is also the Electric Vehicle Home-charge Scheme EVHS – a government grant that provides a 75% contribution to the cost of an electric charge point and its installation. The grant is capped at £350 (including VAT) per installation. Note – This grant ends on 1 April 2022. So, you need to apply for it now.
Electric Vehicles – good for the environment – good for tax
This government has demonstrated a determination to encourage more drivers to purchase electric cars rather than petrol and diesel. The number and variety of electric and hybrid cars available is ever-increasing, as is the vehicle charging infrastructure. There are clearly considerable tax benefits both for the employer and the employee in switching to fully electric company cars and certain hybrids.
There’s no better time to be exploring the environmental and tax benefits of purchasing or leasing electric vehicles. Always take specialist advice. Here at AccountsCo, we’re UK Tax Specialists – here to help. So for expert guidance on the benefits of electric vehicles, get in touch.
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