What Are The Tax Benefits Of Having An Electric Vehicle?
Electric Vehicles
One of the questions we are frequently asked by clients is "what are the tax benefits are of buying an electric vehicle?". It is clear over the past few years that the Government wants to do all they can to encourage the take-up of such vehicles, especially with their target to cease the sale of petrol and diesel cars by 2030.
So let’s take a look at some of the advantages/benefits available when looking to acquire an electric vehicle – be it a car or a van.
Government Grants
There are grants available on the purchase of an electric vehicle. For cars and vans, these are:
1) Cars
The government’s ‘plug in’ financial grant is designed to encourage and increase the purchase of electric cars in the UK.
The grant is restricted to 35% of the purchase price, capped at £2,500, towards the cost of a plug-in electric car.
There are various conditions to be met in order to get this grant:
- It must be brand new.
- It must have CO2 emissions of less than 50g/km.
- It can travel at least 70 miles without any emissions at all (its electric range).
- It must cost less than £35,000. This figure is the recommended retail price (RRP), and this includes delivery fees and VAT.
All full battery-electric cars (costing less than £35,000) will qualify, but very few hybrids will qualify as they will not have the required electric range.
The dealer will reduce the vehicle’s price by the value of the grant.
2) Small vans
- Small vans that qualify for a grant will have less than 2,500kg gross vehicle weight. They must have CO2 emissions of less than 50g/km.
- They must be able to travel 60 miles without any emissions at all.
- The grant will account for 35% of the purchase price for small vans, up to a maximum of £3,000.
3) Large vans
- These vehicles must have between 2,500kg and 3,500kg gross vehicle weight.
- They must have CO2 emissions of less than 50g/km and must be able to travel 60 miles without any emissions at all.
- The grant will account for 35% of the purchase price for these large vans, up to a maximum of £6,000.
Capital Allowances
Capital Allowances can be claimed by the business on the purchase of an electric vehicle at the following rates (2021-22)
| CO2 Emissions | Rate |
| 0 g/km | 100% First Year Allowance |
| 1-50 g/km | 18% |
| Over 50 g/km | 6% |
So for fully qualifying vehicles, the business receives a full tax write off of the cost in the year of purchase, with a resultant tax charge on any sale proceeds when the vehicle is sold.
We often get asked by clients whether the electric car will qualify for the super deduction capital allowances of 130%. The answer to that is, unfortunately not. Only vans (what HMRC defines as vans) can qualify for the super deduction allowance of 130%.
Electric Cars - Benefit in Kind charges (BIK)
The BIK charges for an electric vehicle are significantly lower than for petrol or diesel vehicles. For the tax year 2021-22, fully electric cars attract a BIK charge rate of just 1% of the list price of the vehicle. The Chancellor announced in his recent budget that the BIK rates for the following years will be 2% for 2022-23, 2023-24 and 2024-25.
So, for example, the all-electric Jaguar I-pace with a range of 298 miles and costing £70,000, will attract a BIK charge for the current tax year of only £700. So, for a 40% taxpayer, the actual tax cost of your company providing you with the use of such a vehicle is only £280 per annum! Increasing to £560 from April 2022 until 2025.
Hybrid vehicles are not as attractive and the BIK charge is dependent on the CO2 emissions and the electric mileage range of the vehicle. The table below shows the BIK rates from 20-21 to 22-23 (for cars registered from 6-4-20)
| Cars first registered from 6 April 2020 | ||||
|---|---|---|---|---|
| CO2 (g/km) | Electric Range (Miles) | 2020-21 (%) | 2021-22 (%) | 2022-23 (%) |
| 0 | N/A | 0 | 1 | 2 |
| 1-50 | >130 | 0 | 1 | 2 |
| 1-50 | 70-129 | 3 | 4 | 5 |
| 1-50 | 40-69 | 6 | 7 | 8 |
| 1-50 | 30-39 | 10 | 11 | 12 |
| 1-50 | <30 | 12 | 13 | 14 |
| 51-54 | 13 | 14 | 15 | |
| 55-59 | 14 | 15 | 16 | |
| 60-64 | 15 | 16 | 17 | |
| 65-69 | 16 | 17 | 18 | |
| 70-74 | 17 | 18 | 19 | |
| 75-79 | 18 | 19 | 20 | |
| 80-84 | 19 | 20 | 21 | |
| 85-89 | 20 | 21 | 22 | |
| 90-94 | 21 | 22 | 23 | |
| 95-99 | 22 | 23 | 24 | |
| 100-104 | 23 | 24 | 25 | |
| 105-109 | 24 | 25 | 26 | |
| 110-114 | 25 | 26 | 27 | |
| 115-119 | 26 | 27 | 28 | |
| 120-124 | 27 | 28 | 29 | |
| 125-129 | 28 | 29 | 30 | |
| 130-134 | 29 | 30 | 31 | |
| 135-139 | 30 | 31 | 32 | |
| 140-144 | 31 | 32 | 33 | |
| 145-149 | 32 | 33 | 34 | |
Electric Charging Points and Charging Costs
If a business installs, at their workplace, charging points for electric vehicles, they can claim 100% FYAs for these costs.
If an employer allows its employees to charge up their own electric cars each day at the workplace, there is no taxable benefit in kind. This is a very good tax-free perk! The tax legislation does not treat electricity as fuel. The S.149 ITEPA 2003 fuel benefit charge does not apply to electricity supplied by an employer. Accordingly, no taxable benefit in kind will arise if an employer pays to charge an electric car (owned by an employee) at the workplace, irrespective of the level of the employee’s private mileage.
The following conditions must be met, in order for this exemption to apply:
1. The charging facilities must be provided by the employer, at or near the employee’s workplace.
2. The electric charging must be available to all the employer’s employees generally, or all the employer’s employees generally at the employee’s workplace.
3. The charging facilities must be for the battery of a vehicle in which the employee is either the driver or a passenger.
Electric Vans
Electric vans are becoming very popular with directors and employees.
From 6th April 2021 onwards, there will be a zero van benefit charge for employees who drive fully electric vans and use them privately. So, the tax on this electric vehicle is reducing permanently downwards to nil!
Be careful though as not all “vans” qualify as vans and HMRC are looking more closely now to ensure that what is being claimed to be a van is actually a van under the legislation – we are hearing of more cases where HMRC are arguing the point – and the consequences of getting it wrong can be significant.
Conclusion
This government is clearly determined to encourage more drivers to purchase electric cars rather than petrol and diesel.
The amount and diversity of electric and hybrid cars available is ever-increasing, likewise the electric range.
The infrastructure available, from a charging perspective, is also rapidly increasing and improving.
Electric car sales in the UK are the 12th highest in the world!
There are considerable tax benefits both for the employer and the employee in switching to fully electric company cars and certain hybrids.
From a benefit-in-kind perspective, however, choosing certain hybrids will not fully take advantage of the maximum tax breaks. Additionally, the capital allowances available will be less.
You can check out our 'Top Tax Tips' video series via the link below. In this seven episode series, our Tax experts will open your eyes to the top tax planning opportunities you should be taking advantage of, including the many different grants available with Company Cars and Milage. Check it out now!
https://raffingers.co.uk/hub/video-series
It is important therefore to consider these points prior to purchase! If you need assistance please don't hesitate to get in touch, or contact me directly at paul.dell@raffingers.co.uk