Tax implications of electric vehicles

Monday, July 16, 2018

The Government’s policy concerning electric vehicles appears confused and sometimes contradictory. In this article we set out the facts employers and accountants need to know.

Company cars

An employee who is provided with a company car is taxed on a benefit calculated as a percentage of the list price of the vehicle when it was new. That percentage currently ranges from 13% to 37% depending on the vehicle’s CO2 emissions. Before 6 April 2015 the percentage for a car with no CO2 emissions (ie electric) was 0%, but now it is set at the minimum for all cars: 13%.

As electric cars tend to be more expensive than similar sized petrol or diesel cars, the employee is doubly disadvantaged by this change in the law.

Example 1

Zoe was provided with an electric car by her employer in April 2014, which cost £20,000. As she is a 40% taxpayer she paid the following amounts of income tax in respect of that car, and her employer has paid class 1A NIC on the value of the benefit as follows:

 

Year

percentage

Taxable benefit

Income tax  at 40%

Employer’s class 1A NIC at 13.8%

2014/15

0%

Nil

Nil

Nil

2015/16

5%

£1000

£400

£138

2016/17

7%

£1400

£560

£193.20

2017/18

9%

£1800

£720

£248.40

2018/19

13%

£2600

£1040

£358.80

If Zoe keeps the same electric car until April 2020 she will be taxed on £3,200 (16% x £20,000) as a benefit in 2019/20, which at 40% will amount to tax of £1280 for the pleasure of driving a six year old electric car.

Change ahead

The taxation of electric and hybrid company cars is due to change from 6 April 2020 to take in to account the range the car can be driven with zero emissions, ie solely on electric power. The table of list price percentages for those low emissions cars will be:  

CO2 emissions

Miles on zero emissions

Percentage of list price: electric hybrid

Percentage of list price: diesel hybrid

0

  All (pure electric)

2%

2%

1-50

130 or more

2%

6%

1-50

70- 129

5%

9%

1-50

40-69

8%

12%

1-50

30-39

12%

16%

1-50

Up to 30

14%

18%

 

Company vans

When the employee is provided with a commercial vehicle, such as a van, the taxable benefit is a flat amount of £3,350 (for 2018/19), irrespective of the size or value of the vehicle. The taxable benefit of an electric van is calculated as 40% of that flat rate, ie £1,340 for 2018/19. As for electric cars, there was no taxable benefit for having the private use of an electric company van before 6 April 2015.

Where the company van is only used for business journeys and ordinary commuting to the place of work, there is no taxable benefit for the driver at all. This is an important difference between the taxation of company cars and vans; for cars the journey to work is considered to be a private journey, but where the company van is used to travel to work that journey is not considered to be private use of the van.  

Example 2

Leif was provided with an electric van by his employer in April 2014, which he uses for private journeys outside ordinary commuting. The list price of the van is irrelevant. He is a basic rate taxpayer and has paid the following income tax in respect of the van, and his employer has paid class 1A NIC, over the last five years:

 

Year

Taxable benefit

Income tax at 20%

Employer’s class 1A NIC at 13.8%

2014/15

Nil

Nil

Nil

2015/16

£630

£126.00

£86.94

2016/17

£634

£126.80

£87.49

2017/18

£646

£129.20

£89.15

2018/19

£1340

£268.00

£184.92

 

The taxable benefit of having an electric van is gradually being aligned with the taxable benefit of using petrol or diesel vans. From 2021/22 the taxable benefit of an electric van will be 90% of the flat rate benefit of a non-electric van.

Cost of electric vehicles

Businesses can’t generally claim 100% capital allowances on the cost of buying cars. However, where the car is a low emissions vehicle, which from 2018/19 to 2020/21 means CO2 emissions of up to 50g/km, the business can claim 100% first year allowance on the purchase of a new vehicle.  

Where the business purchases a new electric commercial vehicle, which has zero emissions, it can claim 100% first year allowance on the cost. The vehicle must be new and unused and acquired in the period from 1 April 2010 to 31 March 2021 (6 April 2010 to 5 April 2021 for income tax). Certain industrial sectors don’t qualify for this allowance and the business must not be in financial difficulty when it purchases the vehicle.   

Cost of charging  

Where the employer pays for the cost of charging the electric company car or van there is no taxable fuel benefit for the driver, as electricity is not classified as a fuel for the car benefit regulations.

In many cases the driver of the company owned electric vehicle will pay for the electricity to power it, either from their own domestic supply or by charging at a roadside station. In such cases the employer may reimburse the employee for that cost. With a roadside charge is it easy to see what the total cost is, but it is not so easy to calculate the cost per mile when charging from a domestic supply.

For business journeys made in electric cars from 1 September 2018, the employer can pay the company car driver 4p per mile, to reimburse the driver for the cost of the electricity used, with no tax implications. This rate only applies to company owned electric cars.

Where the employee uses his own electric car for business journeys the company can pay a tax-free mileage allowance to the individual of up to 45p per mile, for the first 10,000 miles driven in the year. Any additional business miles may be paid at up to 25p per mile. These rates are the same as apply for privately owned petrol and diesel cars. The driver may also claim 5p per mile for every passenger he takes on the business journey.

Free charging at work

From 6 April 2018 where the employer allows employees to charge their own electric vehicles at the workplace, there is no taxable benefit for the provision of that free electricity. The charging facilities must be provided “at or near” the workplace, which is the same requirement as for workplace parking to be tax free.

The vehicle charging facilities must be available to employees generally. However, if there are multiple workplaces for the employer, it is not necessary to provide an electric vehicle charging point at each of them. The employee does not need to be the driver of the electric vehicle to benefit from the exemption, he or she may be a passenger, perhaps where the spouse or partner has driven the car to work.

This tax exemption doesn’t apply if the employer reimburses the costs of charging the employee’s own vehicle away from the workplace, such as at a motorway service station. However, the employee may be paid a tax-free mileage allowance for the business miles driven in his vehicle at the approved rates (see above).

Before 6 April 2018, where an employee used an employer-provided charging point to charge their own vehicle, the electricity provided would be taxable as a benefit in kind, although the amounts used were so small that the cost was rarely measured or reported.

Charging points

Where the business installs electric charging points for electric vehicles in the period from 23 November 2016 to 31 March 2019 (5 April 2019 for businesses paying income tax), it can claim a 100% capital allowance for those costs. The cost of installing charging points outside of this period should qualify for the annual investment allowance (AIA), which is currently capped at £200,000 per year, per company or group of companies.