Over the last few years HMRC has appeared keen to tax company cars out of existence. However, we seem to be seeing a resurgence, especially if the car is electric. This is likely because the significant tax advantages of using and electric vehicle.
Here, Andrew Diver, head of taxation at Beatons Group, gives an overview of some of the taxation benefits of electric vehicles to companies and their employees.
What benefits do electric cars have for companies?
If your business purchases an electric vehicle outright or using finance and the car is new and fully electric, then it is eligible for the 100% Annual Investment Allowance. This is providing that the total capital expenditure by the company during the accounting period, is within the allowable limit of £1million.
Leased cars offer benefits too, as if leased, new and fully electric, then the company will be able to claim tax relief all the lease payments without any restriction. Additionally, 50% of the input VAT can be claimed back on leased cars which have private use.
Benefits for employees
For employees, we have to think about the rules of ‘benefit in kind’.
The benefit in kind will be 2% of the list price for the tax year (22/23 and the following two years) as long as the car is fully electric and has a zero CO2 emissions figure.
For example, the benefit in kind on a fully electric car with a list price of £35,000 would therefore only be £700 which would result in tax for a basic rate taxpayer of £140 or £280 for a higher rate taxpayer.
There will be no fuel scale charge as electricity is not a fuel.
Installing electric charging points
When a company installs a charge point, it is eligible for 100% Annual Investment Allowance on the equipment as long as it is it is unused and not second hand.
Note that expenditure for the company must also be within the capital expenditure limit for the accounting period, which is £1m.
This applies for expenditure on electric charging points before March 31, 2023, but it may be extended again as it has been previously.
Income from charging points
Any income from a company charging point which others are paying to use, would need to be treated as ‘other income’.
Supplies of electricity to third parties is vatable at standard rate. VAT input claims would be restricted for private use by employees.
It’s important that employees keep records of both business and private use of the electric cars which have been charged at work.
Also do note that caution is advised when offering vehicle charging commercially as regulations regarding the provision of electric vehicle charging points are due to be introduced from June 2022.
These new regulations will require that the charging system has an element of smart charging such as the use of off-peak optimal charging.
How we can help
At Beatons, we are always happy to give tailored advice to help ensure businesses understand the tax implications of company cars and employee benefits. Please contact us via email info@beatons.co.uk or call 01473 659777.