A guide to electric company cars and tax

The number of electric cars in Britain hit the 200,000 vehicle milestone in 2019, indicating that the UK is finally coming round to the benefits of an emission-free future.

Electric car owners are already experiencing the cost-saving advantages of an electric car, such as reduced mileage costs, improved performance and cheaper tax rates.

With company cars having a significant drain on finances, business owners can make significant savings by upgrading their fleet. So, what are the rules around low-emission cars and tax?

Tax

A company car is always considered a benefit in kind (BiK) if it is given to an employee, which means the correct amount of tax must be paid.

The value of the benefit is calculated the same as any other vehicle. However, electric vehicles do benefit slightly – it is based on the vehicle’s emissions, the list price and the income of the employee who primarily uses the car.

For 2019-20, the rate for zero-emission vehicles is 16 per cent, with the rate dropping to zero to 14 per cent in 2020-21 depending on the type of electric vehicle.

In 2020, ultra-low emission vehicles (ULEVs) will decrease to two per cent under the new company car tax incentives, and the new ULEV rates will take effect in the 2020/21 tax year.

The most tax-efficient cars will be those under 50g/KM, with further incentives for vehicles that can travel the furthest by electric-only power.

Hybrids that are between 1-50g/km will become banded by the electric motoring range, with those that travel less than 30 miles being given a 14 per cent BiK rating, and those that can reach 70-129 miles being given a five per cent rating.

Also note that the list price, or P11D value, includes the cost of the battery, regardless of whether the battery is leased or not. The value of the car may also be reduced if the employee only keeps the car part-time or if they contribute towards the cost of the vehicle.

You can use this handy tool to work out the estimated cost of the vehicle to both the employer and the employee.

Provision of charging facilities

To encourage the use of electric vehicles, there is an exemption from a benefit in kind for workplace charging of low-emission vehicles. The exemption covers the cost of electricity and the cost to the employer providing the facility.

To qualify for the exemption, the following conditions need to be met:

There must be a dedicated charging point (purpose-built)
The charging facility must be at an employer’s premises and has to be available to all employees; and
The car or van must be driven by the employee or the employee has to be one of the passengers.

Business mileage

For personal use, the standard rate of mileage allowance is used. For business use only, pure electric cars use a mileage rate of 4p per mile and hybrid cars use a combined mileage rate based on what the hybrid fuel is (petrol or gas).

Capital gains tax

Most electric cars and some hybrid cars benefit from a 100 per cent enhanced capital allowance relief. Please note, this rate only applies where Co2 emissions are 50g/km or less and the car has been purchased new.

If you or your clients would like tax advice on issues relating to company vehicles, please get in touch.