With petrol prices at levels not seen before, even during previous oil and global crises, it comes as no surprise that the economics of owning and buying an electric car are improving. But are there any other HMRC incentives that may ease the costs of purchase that individuals and company employees can consider in their calculations? It turns out that there are.
While this article will focus on the business considerations of electric vehicles, for the time being, it should be noted that the government is also offering purchase incentives to private individuals on new electric vehicles.
Price of electric vehicles are coming down and choices are expanding
Over the past couple of years we’ve seen the growing introduction of a range of electric cars, e-cars. New models and even completely new new manufacturers have appeared alongside new electrified versions from the well known car manufacturer brands. Until now they’ve been expensive to buy compared to their petrol drinking cousins. Although they still are comparatively expensive, they are getting cheaper as the technology matures, economies of scale improve and competition increases.
The government has for the past year offered favourable tax treatment on electric vehicles purchased for business use. This is set to continue, albeit at slightly reduced levels, but with other favourable market conditions factoring in, the company car is now an interesting prospect once again.
Tax in Benefits in Kind for company electric cars
- 2021/22: 0%
- 2022/23: 1%
- 2023/24: 2%
Considerations when buying an electric car
Should I buy a new or used electric vehicle for business use?
Most of the benefit for a business buying an electric vehicle is achieved by buying a new vehicle. New electric vehicles qualify for 100% first year allowance (FYA). That means you can deduct the full cost of the vehicle purchase price from your profits – potentially a significant tax saving.
Buying a second hand electric car can still be advantageous, but the cost won’t receive the same FYA benefit. Currently, you’ll be able to claim 18% of the purchase price.
Can my business claim for electric vehicle charging points and electricity?
This is an interesting one. A business can claim a 100% first year allowance for installing new charging points at or close to an employee’s place of work. This incentive is currently available until March 31 2023.
How a business chooses to let the employee use the charging point is also interesting.
Charging an electric vehicle at the place of work – private or company owned.
Currently, there is no chargeable benefit to an employee if the company allows them to recharge their own vehicle (private use) at their place of work. This is because electricity isn’t considered a fuel. If it were, simply charging your phone or a laptop might be a chargeable benefit. This is a similar treatment to that of tax free car parking. Naturally, an employee cannot claim for recharging their personal vehicle from other locations, such as a service station.
Charging at third party charging points
Similarly, if an employer pays for the cost of charging a company owned electric vehicle at other locations, there is no chargeable benefit, again because electricity is not considered a fuel.
If an employee pays to recharge a company vehicle from a third party source such as at home or a service station charging point, they can make a claim of 4p per mile.
Can I lease an electric vehicle and claim similar benefits?
Yes, but there are a couple of points to note here. The type of contract is important. Only operational lease contracts are able to qualify for full relief on rental payments. Operating leases differ from the other type of lease – typically a personal contract purchase (PCP), in that once the operational contract ends, the vehicle concerned is simply returned to the lease company. In short, there’s no ownership.
Can I claim back VAT on an electric vehicle purchase?
The answer is yes and there’s no difference here to that of a business buying a regular vehicle. The catch though, is that it must be for 100% business use. HMRC will likely ask you to prove this too, which is notoriously hard to do. if the vehicle is used by employees for personal reasons, then only 50% can be claimed.
The other point to note is that this only applies to vehicles that are classified as low emissions – less than 50g/km CO2. Not a problem for an electric vehicle and the business can claim full relief on rental payments. Above this figure though, only 85% can be claimed.
What can I claim if I used my personal electric vehicle for business use?
Since it became unattractive to have a company car, many people use their own vehicles for business use from time to time. As such regular vehicle owners have been able to make an expense claim for mileage use. If you use your electric vehicle for business use, the rates are exactly the same. The normal tax free mileage allowance is 45p per mile up to 10,000 miles, thereafter 25p per mile.
What about the benefits of electric vans?
Many small business owners and self employed people can benefit here by being an electric van as opposed to a ‘car’.
A van is different from a car because its sole purpose is trade or business related. Also, it qualifies for the same FYA as electric cars do. Accordingly, a van can be used from both business and private use, without the employer or employee incurring a benefit in kind.
What are ‘super-deductions’ and do they apply to electric vehicles?
Super-deductions were announced in the March 2021 budget and relate to ‘qualifying assets’. A super-deduction 130% FYA can be deducted on the full cost of such assets.
But what are qualifying assets? Where electric vehicles are concerned, they are not qualifying assets, which are normally assets acquired to carry on a trade – e.g. office equipment, machinery, computers, etc. Cars are not treated as ‘main pool’ plant and machinery and thus do not qualify for capital allowance purposes.
The good news though is that if your business plans to install charging points for company electric vehicles, these do qualify for a super-deduction of 130%. In other words, for every £10,000 spent, your business can claim back £13,000.
This benefit lasts through 31 march 2023.
What government grants and schemes are currently available ?
Buying an electric vehicle through an employer’s salary sacrifice scheme.
This represents a method by which an employer can offer an employee an electric vehicle in a cost-neutral way through salary deductions. This takes advantage of the employer’s VAT deductions and the employee’s ‘pre-taxed’ salary. This is no different from the way a company may attract top talent by offering healthcare, gym membership, childcare, etc. It is an attractive option because it reduces the employee’s overall taxable income. In some circumstances it could move an employee into a lower tax band.
However, while still an attractive scheme, the government made changes in the scheme in 2017. Since then an employee is required to pay income tax on the value of the car or the amount of salary sacrificed. Those employees on salary sacrifice schemes prior to April 2017 lost this income tax allowance in April 2021.
Fully electric cars however, renew the attractiveness of this scheme as the incentives for electric vehicle purchase and company use remain. The grants offered though only apply to vehicles with a purchase price of less than £32,000.
Here are a few examples. Note these are based on ‘no salary sacrifice scheme implemented’.
Higher value vehicle examples
Example: A regular petrol vehicle
- Purchase price: £45,000
- Engine size and CO2: <1400cc)- 125g/km
- Car benefit charge : £13,050
- Tax liability: 20% = £2610, 40% = £5220
Example: Similar value e-car
- Purchase price: £45,000
- Car benefit charge – £450
- Tax liability – 20%=£90, 40% = £180
- Government grant: Does not apply.
Typical lower cost cars
Example: Fully electric: e.g. Vauxhall Corsa-e
- Purchase price: £25805 inc options
- Car benefit charge – £258
- Tax liability – 20%=£51.6, 40% = £103.20
- £1500 government grant
Example: Regular petrol Cosa (<1400cc – 125g/km)
- Purchase price: £16,445
- Car benefit charge – £4769
- Tax liability – 20%=£953.80, 40% = £1907.60
Other grants available
For vans
- A grant of £3000 available for small vans up to 2500kg.
- A grant of £6000 for vans between 2500kg and 3000kg.
Homecharge scheme
- Employees can make use of the Electric Vehicle Homecharge scheme. This provides 75% towards the cost of and installing a single charge point, up to a maximum of £350 per household per eligible vehicle.
Road tax
- Electric cars are exempt from road tax
- Hybrid vehicles are taxed between £0 and £135 per year depending on CO2 emissions.
How tax Agility can help your business navigate the electric vehicle opportunity
We’ve been assisting small businesses and the self-employed in and around Richmond and Putney for many years. We’re intimately familiar with the issues faced by businesses looking to offer benefits to their employees in a tax efficient manner and also improving the business’s own tax efficiency.
E-vehicles are or have come of age, depending on your point of view. However, there’s no denying that at present there are some significant attractors to a business (or individuals) purchasing a new electric vehicle for business use. We can help you assess the value and benefit to your business, as each business is different.
Call tax Agility today and talk to us about electric vehicle ownership and how it can benefit your business.