Changing to Charging? – Company Vehicles

post-coved recovery

It is well known that, under current proposals, the sale of cars fuelled wholly by diesel or petrol will be banned by 2030 but perhaps less well known is that a ban on the sale of hybrid cars is then set to follow from 2035.

For business owners and employers who provide their employees with company vehicles there are some substantial tax benefits on offer in the next few years for making the switch to pure electric.

Tax Relief on Acquisition

Businesses that want to buy a zero emissions or electric vehicle can benefit from a 100% corporation tax relief on the purchase price in the year of purchase – provided that the car is new and unused

This is a particularly attractive incentive for owner-managed companies, especially where the company director might be looking for a new electric car for themselves.

If the business leases the vehicle, then the lease payments for an electric car are fully deductible against tax for the employer, although VAT recovery is limited to only 50% of the VAT cost, where the vehicle is used privately by the employee.

Tax Cost for the Employee

Whether the car is bought or leased, the other major benefit of switching to electric – for both employee and employer – is the drastically reduced benefit in kind (the amount on which tax and employer’s NIC is payable).

The percentage for diesel and petrol cars increases the more polluting they are and can go as high as 37%. In contrast, for 2022/23, the percentage for an electric car is a very modest 2% – resulting in a much lower value for the taxable benefit in kind. This results in savings of income tax for the employee and Class 1A NIC for the employer.

Another advantage is that it is still possible for an employee to give up salary for their vehicle via salary sacrifice, without being caught by the Optional Remuneration Arrangements (OpRA) rules. These rules mean that when an employee gets a choice between an amount of salary or a benefit, they are usually taxed on the higher of the cash equivalent of the benefit or the salary forgone. But where the employee gives up some salary for an electric car then the employee can still only pay tax on the cash equivalent of the benefit in kind if this is less than the salary given up.

Fuel or Should that be Charging Up ?

There are also incentives for employers to provide workplace charging facilities so that employees can benefit from the convenience of charging while they are at work.

An employer paying to install electric charging equipment can claim 100% of the cost as a first-year allowance – again receiving immediate upfront tax relief – and they can also recover the VAT where the equipment is installed at their business premises.

There is no benefit in kind for the employee if they charge their company car up at the work premises – even if they then use that charge for private miles. This again compares very favourably to the position where an employee provides diesel or petrol for private use, where the benefit in kind cost for private fuel can be very expensive.

In fact, there is no benefit in kind applied to any employee who can charge up at, or near their workplace, even if the car is the employee’s own electric car rather than a company one, provided the facilities are available to all employees.

Time to Act?

At the present time, the favourable tax treatment as set out above, is set to run until March 2025.

However there is no guarantee how long these benefits will be retained so if employers want to take advantage of them, they should consider doing so sooner rather than later.

If you require additional information on this topic, please contact your usual Dixcart adviser or speak to Paul Webb in the UK office:

The information provided within this document is for general informational purposes only. While every effort has been made to ensure its accuracy, no responsibility can be accepted for inaccuracies. Readers are advised that laws and practices may change over time. This document is provided solely for informational purposes and does not constitute accounting, legal, or tax advice. Professional advice should be sought before making any decisions based on the contents of this document.