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Electric Vehicle Corporation Tax Explained (2022 Guide)

Electric vehicles are rapidly changing the face of the automotive industry, and with the impacts of increased accessibility, environmental awareness and the rapid hike in fossil fuel costs, the number of electric vehicles globally reached 6.6 million by the end of 2021, compared with the measly 14,260 from ten years ago. 

The Climate Change Committee (CCC) has proposed a recommendation to the UK government regarding electric vehicle growth, suggesting 60% of all new cars sold by 2030 should be electric. 

Poor air quality is currently one of the greatest environmental risks to health in the UK, with an estimated 40,000 early associated deaths each year and £20 billion per annum cost to the economy. As a result, more people than ever are making the transition to electric, with the average motorist saving roughly £700 a year in fuel costs by switching. 

In response to the increasing costs of petrol and diesel vehicles, the government has introduced a range of special tax measures to encourage the take up of low and zero-emissions vehicles. 

So, what are the business tax credit benefits to going electric, and are electric vehicles worth the investment? In this blog, we’ll focus on the employment tax implications of electric vehicles and the capital allowances available to businesses.

 

Electric vehicle corporation tax – capital allowances

Understanding company car tax on electric vehicles can be a little tricky, so let’s break it down:

Where a fully electric car is purchased outright or through a contract purchase from 1 April 2021 through to 31 March 2025, it is currently eligible for 100% first-year allowances (FYA), providing it is purchased in an ‘unused and not second-hand’ condition and the expenditure is not excluded by one of the general FYA exclusions.

The 130% super-deduction is not available for cars, but expenditure on a new, unused, electric vehicle charge points may qualify for this enhanced deduction, providing that it is purchased between 1 April 2021 and 31 March 2023 – again on the provision that the expenditure is not excluded by one of the general FYA exclusions and on the basis that the charging point is used in your own business.

If you need bespoke advice on your business’ electric vehicle corporation tax, contact us today or email Vanessa.Glenn@hboltd.co.uk for tailored advice.

 

What are benefits in kind (BIK)?

Benefits in kind are any non-cash benefits that you provide to your employees, and are often referred to as notional pay, fringe benefits or perks.

As BIKs have monetary value, they must be treated as taxable income. This means that any electric vehicles that you provide for your employees needs to be taxed accordingly. 

 

Benefit in kind – car benefits

When an employer provides an electric car to their employee, and makes it available for private use, a taxable benefit will arise.

The relevant BIK percentage is applied to the list price of the car, which must include the cost of the battery (even when this is leased separately by the business). 

The employer will have a Class 1A NIC charge on the BIK, currently at the rate of 13.8% (increasing to 15.05% from 6 April 2022). This charge is deductible for corporation tax purposes.

Fully electric vehicles can still create substantial savings for both employees and employers when taken via salary sacrifice. For the employer, the main advantage is the NIC saving. For the employee, there will be less income tax/NIC to pay.

As the BIK for an electric vehicle is very low at present, the saving for the employee can be substantial, with the savings due to increase from April 2022 when the NIC rates go up.

The rates for the next three tax years are as follows:

 

Tax Year 

BIK Rate 

2021/22 

1% 

2022/23 

2% 

2023/24 

2% 

Benefit in kind – fuel benefits

HMRC’s current opinion is that electricity is not a fuel for the purpose of car fuel benefits. 

Most businesses reimburse their employees for the cost of fuel used for business travel in their company cars or will expect their employees to repay the cost of fuel they use for private travel. 

The advisory fuel rate for a pure electric company car is currently 5p per mile. Providing the rate you pay does not exceed the advisory fuel rate there will be no taxable profit and no Class 1A National Insurance to pay.

 

Benefit in kind – charging benefits

If the employee uses their own electric car for business journeys, the business can pay the employee in accordance with the approved mileage allowance payments; essentially 45p for the first 10,000 business miles in the tax year and 25p for each subsequent business mile. 

The rates are the same regardless of whether the car is electric or non-electric.

 

Provision

Company car available for private use

Employee using own car for business purposes

Employer allows cars to be recharged from a vehicle charging point at work.

No taxable benefit

No taxable benefit where the charging facilities are at, or near, the workplace.

Employer pays for a charging point to be installed at the employee’s home.

No taxable benefit

Taxable benefit based on the cost to the employer.

Employer pays for a charge card to allow employee’s unlimited access to third party charging points

No taxable benefit

Taxable benefit based on the cost to the employer.

Need further advice?

Our team at HB&O understand that rising fuel costs and other business pressures are pushing many organisations towards electrification.

If you’re concerned about anything discussed in this article, or are interested in investing in an electric vehicle as a company car and would like further information on the tax implications doing so, contact our tax team today on 01926 911695 or email Vanessa.Glenn@hboltd.co.uk

We’re on hand to answer any questions you might have, get in touch today!

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