Advice

Electric Cars - The Tax Perspective

Chris Stedman
Senior Partner
February 23, 2022
    

It is gradually dawning on many tax advisers that there is a significant advantage for business owners who drive an electric car owned by their company. Traditionally the advice has been that it is more tax efficient for business owners to hold cars in their own names rather than that of their companies. The electric car revolution has changed all this.

Capital allowances

A fully electric vehicle will normally qualify for 100% First Year Allowance (FYA). The overriding conditions are that the car must be acquired unused and it must not be second-hand. The expenditure must be incurred no later than 31 March 2025 and importantly there are no restrictions on the amount of this expenditure.

Take a company that has done very well in the current accounting period. The directors decide to purchase a couple of fully electric cars at a cost of £35,000 each. They will obtain an immediate tax write-off of £13,300 (£70,000 @ 19%).

 Car benefits-all electric

The percentages to be applied against cost value for a fully electric car are as follows:

  • 2020/21          0%
  • 2021/22          1%
  • 2022/23          2%

Suppose a director is provided with a new Tesla Model 3costing £41,000 at the commencement of the 2021/22 tax year. The benefit figures are:

  Director Company
Benefit  410.00 410.00
                                 
Tax / NIC rate 40% 13.8%
Charge 164.00 56.58
                                   

The director will be paying less than £14 a month! Even when this doubles on 6 April 2022 he will hardly notice the difference!

Car benefits-hybrids

 Benefit figures for the hybrids are partly determined by the electric range. Provided the CO2 emissions fall between 1-50 k/gm the percentages to be applied against the original list price for 2021/22 will be:

  • 130 miles or more          1%
  • 70-129 miles                    4%
  • 40-69 miles                      7%
  • 30-39 miles                      11%
  • less than 30 miles           13%

Even a 13% hybrid is a significant improvement on its non-electric cousin.

 Car fuel benefits

It gets better and better! Electricity is not classed as fuel for car fuel benefit purposes. There is no tax charge for plugging in at work.

 Even if an employer provides battery charging facilities at or near the workplace for electric vehicles owned privately there is no benefit in kind tax charge on electricity and other facilities provided for this purpose.

 Added perks

Vehicle excise duty (usually known as road tax or road fund licence) has been reduced to nil for all electric cars until 2025.

Yet another relaxation is that electric vehicles are exempt from the London congestion charge provided they are registered for the Cleaner Vehicle Discount at the cost of £10. Pretty good going for a tenner. Note however that with effect from Christmas Day 2025 all cars travelling in Central London will be subject to the congestion charge. So don’t forget this relaxation expires on Christmas Eve 2025.

And finally…where an individual has a car made available to him under a salary sacrifice scheme the benefit is normally valued as the higher of:

  • The amount of the salary given up; or
  • The taxable benefit.

 However the optional remuneration rules do not apply if the company car has a CO2 emission factor of 75g/km or less.

Conclusion

in view of the fact that the driver of an employer-provided electric car suffers only a very modest benefit in kind tax charge and no car fuel tax for any private motoring it makes sound tax planning sense for family or owner-managed companies to purchase such cars through the business rather than in the individual’s own name. But do remember that the beneficial FYA treatment is only available until 31 March 2025 although it is quite possible that the Government will replace this with another attractive allowance when the time comes.

C&H Stedman are here to advise on this and other tax issues

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