This post has been updated: 17 May 2021
There’s a lot of talk currently about businesses acquiring electric vehicles – and this is certainly being encouraged by the government, with the move to electric-only vehicles being sold by 2030.
Aside from the considerable environmental benefits of running an electric company car vs petrol or diesel, there’s also significant taxable benefit in kind (BIK) savings to be had at the moment too.
Here’s our advice on running company electric cars and vans, alongside the provision of charging points.
Company car tax is currently based a percentage of the list price of the car (determined by the CO2 emissions). Of course, where electric cars have no CO2 emissions, there’s a separate set of rules.
Until 5 April 2021 employees had been taxed at 0% on their fully electric company cars. For the tax year 2021/22 the rate has now increased to 1% and for tax year 2022/23 the Treasury has announced that it will be 2% These rates of 1% & 2% are significantly lower than those applied to conventional fuel cars, which can be up to 37% of the value of the car, each year.
The BIK is a taxable benefit for the individual and tax will be payable on this amount at the appropriate rate, depending on which tax bracket they fall in to.
The company must also pay Class 1A National Insurance (NIC) on the BIK charge at a rate of 13.8%. Therefore, if this charge is nil or 1-2%, and if you’re running a fleet of cars, this can have also have a significant saving for the company.
In a bid to encourage companies to make the switch to electric vans, a change came into force on 6 April 2021 meaning that there is now no BIK charge for the provision of an electric company van for personal use. Prior to this change, there was a BIK charge of £2,782 for personal use of electric vans (compared to the £3,490 charge for standard non-electric vans).
Again, the company will benefit from a reduction in its Class 1A NIC obligations.
Electricity is not fuel
HMRC does not currently view electricity as a ‘fuel’ which means that any provision of electricity for private mileage (i.e. if the vehicle is charged at the office/workplace) is not seen as a BIK and will not require any additional reporting on your behalf.
If the company chooses to reimburse the employee for the cost of charging the vehicle at home, this will then be classified as a BIK to the employee and will be taxed as if it were additional earnings, like salary. This is due to the company paying a personally incurred bill (based on the assumption of providing for non-business miles too).
Alternatively, the company could choose to pay the employee – or the employee could claim – 4p per business mile undertaken instead of the full reimbursement of electricity.
If the company was to provide electricity for both business and personal mileage, but stipulate a company policy of charging employees for their private mileage, then private mileage would be reimbursed by the employee at the rate of 4p per mile in the same way that is currently done for petrol or diesel vehicles.
Here is a very useful indicator in calculating the tax implications of who pays for charging the car.
Charging points at the office
If you were to install a charging point(s) at the office, there’s currently no BIK charge applicable to employees charging their personal vehicles at their place of work, providing that the charging point is;
- At or near the place of work and;
- The charging point/facility is offered to all employees with electric vehicles.
So, the government is really trying to get people into electric cars and vans. As the balance of vehicles on the road switches to electric, the Treasury will change this approach as it will need to replace lost revenue, but for now, the incentives are excellent and should be given strong consideration when buying a new vehicle.
If you have any specific cars in mind and would like to chat through any of the above, please get in touch and our specialist tax team will be happy to help you.