Electric car tax considerations
Over the last few years electric cars have become more and more popular. In addition to their environmental benefits they can also attract a number of tax reliefs. This blog provides an overview of the main tax considerations when purchasing an electric car via your company.
Most cars purchased by companies will be due tax relief on a writing down basis at either the main rate (18%) or the special rate (6%). However, for new and unused electric cars with CO2 emissions of 0g/km, there is a special enhanced capital allowance of 100% available. This effectively gives full tax relief for the purchase in the year of purchase.
If the car is disposed of, it may result in a high balancing charge due to the electric vehicle pool having a zero balance. It is therefore crucial you seek advice before disposing of your electric vehicle. A first year allowance of 100% is also available for expenditure incurred on electric charge-point equipment.
HMRC have no special VAT breaks for electric cars and hybrids. The VAT can only be recovered by a VAT registered business on the purchase of the car if there is no private use at all i.e. a pool car, and that includes home-to-work journeys. So, you can only reclaim the VAT on the purchase of the car if it is for 100% business use only.
If your business leases the car, then you can recover 50% of the VAT on the hire charges and all the VAT on any additional charges such as maintenance or roadside assistance.
Running costs, insurance, road tax, servicing etc. for cars provided to employees are fully deductible for Corporation tax.
Benefit in Kind
The Benefit in Kind (BIK) tax for electric vehicles remains at 2% of the car’s P11D value (broadly the manufacturer’s list price plus optional extras) for 2023/24 and 2024/25. Thereafter this will increase to 3% in 2025/26, 4% in 2026/27 and 5% in 2027/28. Similar increases will also be made to the benefits-in-kind for hybrid cars, where the appropriate percentage depends on the electric range of the vehicle.
Employees are subject to income tax on the value of the benefit at their marginal rate, and the company is chargeable to National Insurance Class 1A on the benefit value at a rate of 13.8%, this cost is an allowable cost for Corporation Tax.
A number of benefits connected to company cars do not attract employment taxes, but still qualify for Corporation tax relief, these include:
- HMRC do not consider electricity to be a fuel for car fuel benefit purposes
- reimbursed business mileage at 9p per mile, from 1 March 2023
- the cost of charging an electric vehicle at work
- the cost of installing a vehicle charging point at the employee’s home (only if a company car)
- employer pays for charge card of £100 per year to allow individuals unlimited access to local authority vehicle charging points (only if a company car).
The example below is based on a Tesla Model 3, with a purchase value of £50,000 that is registered after 5 April 2020 and with a higher rate tax payer employee.
|Class 1A on benefit||138||138|
Corporation tax relief - on the assumption that corporation tax is
paid at the main rate.
|Tax on benefit||400||400|
As ever, we are here to support our clients, and if you would like to discuss any of the above in more detail please contact Claire Liddell or liaise with your regular Rickard Luckin contact.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: