The tax benefits of electric vehicles

Owning an electric vehicle might appear costly, but a range of Government incentives for zero (and low) emission vehicles means tax can be reduced to such an extent that it becomes a compelling proposition. Is now the time to consider the move to a zero-emission vehicle?

Company cars are taxed on individuals through a benefit in kind rate (BIK). The BIK rate for zero emission ‘EVs’ is 2% in 22/23. A diesel or petrol car can have a BIK rate as high as 37%, with 25% around average for a ‘normal’ family saloon, this highlights the benefit of going electric. What does this mean in practice?

BIK table for an individual

Price BIK rate Taxable benefit Basic rate tax @ 20% Higher rate tax @ 40%
Electric car £50,000 2% £1,000 £200 £400
Diesel car £50,000 25% £12,500 £2,500 £5,000

When choosing a company car (rather than owned by the individual), VAT savings and personal tax savings (via salary sacrifice) can be made.

It’s important to note that the tax position can be different depending on the position of the person in the company. The BIK for a Director could fall within their tax-free personal allowance so there would be no direct tax charge.

Company Considerations

Initial purchase:

  • If the company were to purchase the vehicle or finance the lease, the EV would be a company asset and qualify for 100% relief against company profits through capital allowances. There are no restrictions on the value of the vehicle and any finance costs would be deductible against company profits
  • Operating lease – the lease costs are deductible against company profits.

Can any VAT be reclaimed?

  • Outright purchase/finance lease – unfortunately if the EV is used for personal use too, no VAT can be reclaimed
  • Operating lease – when an EV is used personally then only 50% of the VAT on the monthly lease costs can be reclaimed.

What costs associated with the EV can be expensed through the company?

  • At home or office charging point installation. The company can treat these as an asset rather than an expense.  This allows a claim for capital allowances as the corporation tax relief. Currently they are eligible for the super-deduction (130% first-year allowance), available until March 2023
  • As an added bonus, if there is a separate electric meter in the company name for this charging point then the company can pay for all home charging on your vehicle.
  • All insurance, servicing, repairs
  • The company can provide the employee with a £100 per year charge card allowing the employee to fill up at local charging points with no taxable benefit regardless of private miles
  • Mileage for any business miles can be reimbursed at the advisory electric rate (currently 5p/mile)
  • Common sense needs to be applied when recharging miles. If the company has paid for the electric then you cannot recharge miles too, however if you have paid for the electric then you recharge.

Any other costs to consider?

  • The company would have a small class 1a National Insurance cost (on a £50,000 EV this would be £138 for 2022/23).   A P11d would need to be completed annually for HMRC.

Can I give an EV to an employee? 

  • Yes, and an employee benefit such as a company car, will create goodwill, and potentially improve staff retention
  • Typically, salary sacrifice is used to reduce the employee’s salary by the cost to the company of the EV. This provides the employee with tax and National Insurance savings.

Other benefits

  • As well as the obvious ‘green’ credentials, there is no road tax to pay on an EV (until at least 2025)
  • A new car with a warranty is likely to cost less on maintenance than the car it replaces
  • On a cost per mile basis, electricity costs less than a third of the cost of diesel or petrol.

Elsby have helped clients and their staff reduce their individual tax burden through electric vehicle ownership. Contact us today to if you would like help in reducing the cost of ownership for your next electric vehicle. (Need to think about what the contact method is – could we have a short form to collect name and e-mail address)?

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