Electric cars

  • Posted by: Michael Winkelmann
Electric Cars | Tax Advice on Electric Cars | Accountancy Advice Electric Cars

There are more electric cars appearing on our roads. This is partly driven by the desire for environmentally friendly transport and partly by the current tax benefits of electric company cars.

Usually company cars aren’t great for taxations reasons but the government is using the tax system to actively encourage their use at the moment.

There are three main tax incentives, as if the environmental benefit was not sufficient incentive:

1.First year allowances

Businesses can claim 100% first year allowances on cars producing CO2 emissions below 50gm/km. This means that you will get tax relief on the full cost of the car in the year of purchase provided that the car is ‘unused and not second hand’.

However, as the car will probably be sold at some future date the tax on the sale value will need to be repaid at that point. This means that the tax benefit will be based on any loss in value of the car between purchase and sale. There will also be a cash flow benefit.

2.Employee benefit in kind

The value of a car as a benefit in kind is based on the price of the car and accessories multiplied by a set percentage. For an electric car with emissions below 50gm/km this percentage is 0-14% of the NEDC (New European Driving Cycle) or 0-12% of the WLTP (World harmonised Light Vehicle Test Procedure) for 2020/21. The exact rate will depend on the electric range.

This means that the employer will pay less National Insurance on the benefit and the employee will save tax and National Insurance too.

3. Fuel benefit charge

If an employer allows an employee to recharge their car from a vehicle charging point at work there is no benefit in kind as electricity is not covered by the Fuel Benefit Charge.

Similarly there is no taxable benefit if the employer pays for a vehicle charging point to be installed at an employees home or if they pay for a charge card of up to £100 pa towards recharging at local authority charging points.

This means that the employer will pay less National Insurance on the benefit and the employee will save tax and National Insurance too.

There are also tax benefits to be had when purchasing electric vans for your business.

This article is for information only and should not be considered as tax advice. Please consult us for individual advice.