Electric cars have become increasingly popular in recent years and its important not to miss out on the benefits they offer. Apart from the environmental benefits of these vehicles, part of their popularity is due to the various tax advantages available.
Business Benefits – Capital Allowances (CA’s)
Electric cars and those with a CO2g/km of under 0g/km can obtain first year allowances of 100%, meaning the tax deduction can be fully achieved in the first year of purchase (until March 2025). We need to caveat that the car purchased must be new.
This contrasts with capital allowances that can be claimed on diesel and petrol cars purchased by businesses with CO2g/km of under 50g/km at 18% annum, which means it takes about 5 and half years to achieve the full tax deduction. Cars with a high CO2 emission threshold over 50g/km have a lower writing down allowance of just 6 per cent, so that would take over 16 years.
The 100% first year allowances are also available for electric charging points, if they are installed at the business location.
Business and Employee Benefits (P11D and NICs)
Users of company cars should be aware that, if the business provides a car for private use, this will be considered a benefit in kind (BIK). The BIK charge will be added to the P11D as a taxable benefit for the employee. The employer also must also pay Class 1A secondary NICs at 13.8 percent based on the BIK amount.
The BIK amounts are based on the list price of the vehicle and the CO2 emission level (check the V5 logbook for this). The BIK rate for fully electric cars (not hybrid) is just 2% in 2023-24, and this rate will stay frozen until at least tax year 24/25. In contrast, petrol and diesel cars are charged at a significantly higher rate. The BIK rate for hybrid cars is lower, but not as low as fully electric cars.
The lower BIK rate for fully electric cars means the employer will also pay less Class 1 A secondary NICs.
What is the fuel benefit for company cars?
When it comes to electric cars, the fuel benefit for petrol and diesel is a moot point, because it does not apply to electricity. For instance, if you have an electric company car and charge it at company’s location, using the employers’ electricity, it will be an exempt benefit in kind.
Even if you re-charge the car at a different location, say a public charging point, and you reclaim these costs as a business expense, it will not trigger a BIK.
By contrast, the car fuel benefit for petrol/diesel cars is fixed each year (£27,800 in 2023/2024) and the multiplied by the appropriate percentage for fuel benefit purposes.
If the employee pays for the electricity, he/she can be reimbursed for the business miles travelled at a standard rate of 5p per mile from 1 January 2022.
If the employee has an electric company car, there is no BIK if the employer installs a charging point at the home of the employee.
What is the fuel benefit for private cars?
Since April 2018, charging privately owned cars at or near the office is not considered a BIK. Notably this applies, even if the car is driven for private purposes. However, this concession can only be achieved if charging points are made available to all employees.
In contrast to company vehicles, if the employer installs a charging point for a private vehicle at the home of the employee, the cost paid by the employer is classed as a BIK. This rule applies, even if the private car is partly or business use.
The bad news is that there is no difference in UK VAT between purchase of fossil fuel and electric cars. Of course, there is the usual input tax that can be claimed on the cost of a company car for exclusive business purposes. However, the VAT for company cars with part private use cannot be reclaimed.
REFERENCE: V5 document: https://www.gov.uk/vehicle-log-book