Iain Rankin suggests that now may be the time to make the switch to an electric company car.
Directors and employees who drive fully electric company cars will continue to benefit from a 2% benefit-in-kind rate in 2022/23 and 2024/25. When we consider that such vehicles were taxed at 16% of the list price in 2019/20, we can see the tax benefits of electric cars as fuel prices continue to soar, despite the Chancellor’s recent fuel duty cut.
By way of example, the 2019/20 benefit-in-kind charge for a £70,000 Mercedes EQC was £11,200, but for 2022/23 this will be £1,400.
Salary sacrifice
Normally, if an employee has a company car provided by their employer under a salary sacrifice arrangement, the taxable benefit is the higher of the salary given up or the taxable car benefit.
The provision of a fully electric car under a salary sacrifice arrangement allows for the employee to retain the lower benefit-in-kind tax charge.
Government car grant
The government’s ‘plug-in’ car grant is designed to encourage and increase the purchase of electric cars. The grant is now capped at £1,500 towards the cost of a new electric car. The grant has become gradually less generous over the years; and while no formal date has been provided for the end of the scheme, it seems unlikely to last much beyond 2023. Several conditions must be met to receive this grant. The car must be brand new and cost less than £32,000 (including VAT and delivery).
There is also a government grant towards the cost of an electric van, capped at 20% of the purchase price, up to a maximum of £5,000 (or £2,500 for a small van). In addition, there are government grants for some electric motorcycles (maximum grant £500).
Electric charging points
A first-year capital allowance of 100% of expenditure is available for electric charging point equipment. The allowance is available for expenditure incurred before 1 April 2023 for corporation tax purposes and before 6 April 2023 for income tax purposes.
A tax exemption applies to remove the liability that might potentially arise where an individual charges the battery of a vehicle used by the employee. For this exemption to apply, the charging facility is provided at or near the employee’s place of work and is available to all employees. Note that if an employer pays for an employee’s own electric car to be charged away from the workplace, the exemption will not apply, and the cost or reimbursement will be taxable.
Vehicle excise duty
The vehicle excise duty (VED) rates for all fully electric vehicles have been reduced to nil until at least 2025.
Capital allowances
Fully electric company cars qualify for a 100% first-year allowance, so long as the car is purchased new and unused.
Running costs: Electric vs petrol
The cost of charging an electric vehicle is far lower than the price of fuel, meaning electric car cost per mile figures are significantly lower for similarly priced electric and conventional cars. Typically, fuel costs per annum will reduce by approximately 80%.
Practical tip
Switching to a fully electric company car offers substantial tax benefits both for the employer and the employee. As things stand, the capital allowance benefits on the purchase of electric cars and the installation of charging equipment, and the lower rate of benefit-in-kind on electric cars, are set to run until March 2025. Given the upcoming 2030 ban on conventional vehicles, there is no guarantee how long these benefits will be retained. Thus, if employers wish to take advantage of the tax breaks listed here, they should consider doing so sooner rather than later.
