Electric Car Tax Relief
Electric Cars are becoming more popular in the UK as the government has encouraged us all to go green by making them tax efficient.
Why Electric?
Cheaper runnig costs (typically 16-17p per KWH makes the overall cost as low as 3p per mile for electricity for typical 64kwh car with range of 275 miles
Low maintenance costs
Reduced pollution
Home charging and grants available to install
No congestion or clean air charges
Reduced noise
So is it worth having an electric company car?
For businesses, electric vehicles can be very beneficial. They show commitment to protecting our environment and say something about the ethics and values of the business. For employees and Directors they can be an environmentally friendly choice and the benfit in kind relief makes the car a cheaper and affordable alternative to other rewards. The running cost are lower too and so it saves money for the company, a win win.
So what are the tax benefits?
P11D / Class 1A National Insurance
The Benefit In Kind (BIK) for a vehicle is determined by the list price of the vehicle and the C02 emmissions for the vehicle. For 2021/22, zero emissions cars that are fully electric carry a benefit in kind charge of 1% of the list price and for 2022/23 this will rise to 2%.
Put simply this means that electric vehicles are the most tax efficient company cars available and a great way of extracting a benefit from your company at a very low tax rate.
Worked example.
For 2021/22 the BIK for and electric vehicle (EV) is 1%.
For a car with a list price of £39750 the BIK would be £397.50.
If you are a 20% tax payer then your tax charge would be £397.50 @20% = £79.50 per year
You would pay tax of £159 per year if you are a 40% tax payer.
The employer will pay 13.8% class 1A NI - £54.86
Frequently Asked Questions.
Can I claim VAT back on an electric vehicle? - It is still a car and so if you buy it then the answer is no, unless it is not available for private use or only used for business such as a taxi or driving school.
You can claim 50% of the VAT on a leased car but 50% is blocked. Full VAT recovery is available on ongoing maintenance subject to the usual partial exemption and business use tests.
What about charging points? There are subsidies available to assist with the cost of installing a charging point at home and at your place of work. You need to use an eligible installer that can access the subsidies, especially the instalation at work subsidy that is claimed via DVLA. Businesses can claim 100% first year allowance on installing charging points up to 31st March 2023. So that helps too.
What if I charge my car at work? Where the employer pays for the charging the company provided electric vehicle there is no taxable fuel benefit for the driver, as electricity is not classified as fuel for the car or van benefit regulations. The employer can reimburse 4p per mile for the cost of electricty provided by the employee (if they charge the car at home) if used for business journeys. This rate only applies for company provided electric vehicles, not to private vehicles.
Can my company pay for the lease for an EV? Yes your business can meet the costs of the lease and the good news is that lease costs can be offset against tax without the deduction of 15% that is made for cars with higher emissions. Relief is at the typical 19% corporate tax rate.