The tax benefits of electric vehicles:
The government is willing to promote the use of electric cars to help environment.
The tax regime for cars is designed to encourage the use of low emission vehicles.
What are the tax benefits and is now the time to consider the move to zero or low-emission vehicles?
What are the different types of taxes and relief involved?
Government grants(electric vehicles):
For cars, the grant covers 35% of the buy price (including VAT and delivery fees), up to a most of £2,500 provided the vehicles:
- Cost less than £35,000;
- Have CO2 emissions of less than 50g/km and be able to travel at least 112km (70 miles) without any emissions at all.
Under the scheme, consumers pay the discounted price. And do not have to go through a separate application process. Only dealers and manufacturers need to access. The portal to apply for the grants available.
The government’s plug-in car grant designed to promote the uptake of electric vehicles in the UK.
Grant for Small vans is £3,000 (less than 2,500 kg gross vehicle weight). And for large vans £6,000 (between 2,500 kg and 3,500 kg gross vehicle weight).
P11D/Class 1A National Insurance:
Class 1A National Insurance levied. Where an employee uses the electric car owned by the limited company.
The percentage of the price of a company car. Which taxed as a benefit for employee determined by the CO2 emissions of the vehicle.
For the last year, low emission cars (up to 50g/km) were taxed at 16% of the price, or 20% for diesels.
There have been significant reductions in this charge from April 2020. With cars falling to 0% in 2020-21 as well as reductions for electric hybrids depending on their range.
What is Salary Sacrifice
A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement. To cash pay, usually in return for a non-cash benefit (for example Pension contribution). As an employer, you can set up a salary sacrifice arrangement. By changing the terms of your employee’s employment contract.
Where an employee has a car provided under salary sacrifice. The benefit valued as the higher of the amount of salary given up or the taxable benefit.
Yet, the optional payment rules do not apply if the company car has CO2 emissions of less than 75g/km.
The taxable benefit for having the private use of a zero-emission van reduces from April 2021 to nil.
Please note that for non-electric vans there is no taxable benefit at all. If the van is only used for business journeys. And ordinary commuting, irrespective of fuel type.
We have to distinguish here what is a “bicycle”and what is an “Electric Motor and a Motorbike”.
There are different rules for both.
Electric Bicycle cannot have a motor-powered top speed excess of 15.5 mph. And the electric motor must be less than 250 watts in power.
Anything above these criteria would be classed as a motorbike.
Why is this important?
An electric bicycle will still qualify for the Cycle to Work Scheme. So can provided without a P11D benefit in kind arising for an employee.
There are no specific tax advantages for an electric motorcycle, and these taxed. Under general use of asset rules in the same way as their petrol-powered equivalents.
Vehicle Excise Duty:
The road tax, or Vehicle Excise Duty (VED). Rates for all pure-electric vehicles have reduced to £0 until at least 2025.
There are reduced Vehicle Excise Duty (VED ) rates for plug-in hybrid electric vehicles (PHEVs).
From 6 April 2020, businesses can claim 100% of the cost of an electric vehicle. Against the profits of the year of buy and there are no restrictions on the value of the vehicle.
Electric cars qualify for the new super-deduction, which offers 130% first-year allowance. On qualifying electric charging points for cars and vans.
To qualify for the relief the company must use the charging point within their own business. This relief will last until 31 March 2023.
From 1 April 2021, pure zero emission car can qualify for a 100% first year allowance (FYA) for the new cars only.
A similar 100% FYA applies for zero emission vans. Where the vehicle is purchased new before 1 April 2021.
Commercial vehicles already qualified for 100% relief under the Annual Investment Allowance.
Cars with CO2 emissions not exceeding 50g/km will be part of the main pool. For capital allowance purposes, so attracting a writing down allowance (WDA) of 18%. Cars with CO2 emissions exceeding 50g/km must allocated to the special rate pool, where the WDA is 6%.
Electric bikes will also qualify for the Annual Investment Allowance.
Electric charge points and charging costs:
Where the business installs charging points for electric vehicles. Up to 31 March 2023, it can claim a 100% FYA for those costs.
Employee charging their electric vehicle:
From 6 April 2018, where the company allows employees to charge. Their own electric vehicles at the workplace. There is no taxable benefit for the provision of that free electricity for the employee.
For this tax exemption to apply, the charging facilities must be provided at or near the workplace.
This tax exemption does not apply if the employer reimburses the costs of charging. The employee’s own vehicle away from the workplace.
Employer paying cost of charging for the company owned car:
Where the employer pays for the cost of charging the company-provided electric vehicle there is no taxable fuel benefit for the driver, as electricity is not classified as a fuel for the car or van benefit regulations.
An electric vehicle will still be viewed as a car for VAT purposes. Therefore, VAT is not recoverable on purchase, unless it can be demonstrated that the car is only available and used solely for business purposes. In practice this is very difficult to achieve in most of the cases.
The same VAT recovery rules also apply for leasing purposes with 50% VAT recovery on the leasing charge available.
Privately owned electric cars:
Where the employee uses his / her own electric car for business journeys, the company can pay the normal tax-free mileage allowance to the individual of 45p per mile for the first 10,000 miles driven in the year, with additional business miles reimbursed at 25p per mile.
Where the employee owns or leases the electric car, they will be entitled to a grant under the Electric Vehicle Homecharge Scheme. This grant covers a 75% contribution towards the cost of one charge point and its installation, up to a maximum of £350 (including VAT) per household.