Favourable tax treatment for employers who change company vehicles to electric

Electric car

Business owners and employers who provide their employees with company vehicles before March 2025 can enjoy substantial tax benefits in the next few years for making the switch to pure electric in advance of the 2030 ban. Example Case study:

A potential prospect heard about the tax relief available to business owners and employees with company vehicles, who switch to pure electric before the 2030 ban. He uses a company car and therefore can also benefit from his company making the change.

Dixcart UK can advise clients who are considering a move to electric company cars that they can:

  • Benefit from a 100% corporation tax relief on the purchase price in the year of purchase of the vehicle, provided that the car is new and unused.
  • Lease the vehicle if they wish and that the lease payment for an electric car is 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.
  • Provide clients with the use of the company car with a drastically reduced benefit in kind which would not only save tax but also would save the company employer’s NIC.
  • Benefit from a much lower value for the taxable benefit in kind and enjoy savings of income tax for the employee and Class 1A NIC for the employer, as the percentage for an electric car on how polluting they are is a modest 2% (compared to 37% for diesel and petrol cars).
  • Allow employees to continue to give up salary for their vehicle via salary sacrifice with an electric car, without being caught by the Optional Remuneration Arrangements (OpRA) rules. Where the employee gives up some salary for an electric car, 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.

In addition, there are incentives for employers who provide charging points on the work premises so employees can enjoy the convenience of charging while they are at work. Employers who install electric charging points and electric charging equipment can claim 100% of the cost as a first-year allowance and receive immediate upfront tax relief. They can also recover the VAT.

At the moment, the favourable tax treatment is set to run until March 2025, but there is no guarantee how long the benefits will be retained.

Going back to our example case study, the company (having understood all of the advantageous incentives for both employers and employees), have decided to go ahead and make this change now.

They have decided that the company will buy new, electric cars for the directors and key staff members and they have also decided to upgrade their carpark in order to provide workplace charging points. They would like to incentivise their staff members and show that they care about the wellbeing and values of their employees.

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.