Electric Company Cars: New Rates Will Reduce Your Tax Liability

Electric Company Cars: New Rates Will Reduce Your Tax Liability

For the best part of a year, the Government has been reviewing vehicle taxes which are linked to CO2 emissions; in particular, company car benefit-in-kind (BIK) tax for employees.  They concluded from this review that clear incentives were required for zero emission vehicles.  As a result, the Government has scrapped the previously published BIK rates for the tax year 2020/21 onwards.

Providing electric company cars to employees results in a taxable benefit.  The benefit is calculated using the car’s list price, which must include the cost of the battery, even if this is leased separately, and the applying the appropriate benefit charge percentage.  For the current tax year, zero emission cars attract a benefit charge at 16%.  However, from April 2020, the percentage to calculate the BIK is set to be reduced to 0% for the 2020/21 tax year, then 1% for 2021/22, and increasing to 2% in 2022/23.

Providing electricity to the car does not count as a ‘fuel’ benefit and no BIK will arise even if a charging point is installed in a work place and the employee uses it for both business and personal use.  Also, the provision of a charging point at the employee’s home would not result in a BIK.  (Therefore, providing a pure-electric car to your employees and providing them with the electricity will result in a much lower, if any, BIK for the employee.)

There are also corporation tax incentives too!  If the company purchases a new and unused pure electric car, then the cost would qualify for enhanced capital allowances and a deduction of 100% is available.  The company will also be able to claim capital allowances on the charging point and its installation.

It is worth noting that some brand new, low-emission vehicles, are eligible for a grant of up to £3,500!  It is clear HMRC is providing incentives to use electric cars.  Please contact Rachael Day – rachael.day@kilsbywilliams.com – to discuss how to maximise your tax reliefs.