Updated: January 2022
The Government have sought for a number of years to incentivise the use of electric, and other ultra-low emission vehicles. While the incentives include plug-in grants against the initial cost of vehicle and reduced first year rates of vehicle excise duty, the main provisions affecting the taxes of business users are as follows;
Capital allowances
Enhanced capital allowances of 100% of the cost of a new (i.e. unused and not second-hand) electric car are available to businesses in the year that a vehicle is purchased. Not to be confused with the Annual Investment Allowance, which is not available for any car, the relief which had only been available until April 2021 has been extended to 31 March 2025.
The enhanced allowance is only available for new cars with CO2 emissions of 0g/km after 1 April 2021 [this rate was previously 50g/km from 1 April 2018, 75 g/km, from 5 April 2015, and 95g/km prior to that].
This compares to rates of 6% or 18% per year (dependent on the level of emissions) that are normally available, with second hand electric cars attracting the 18% rate of writing down allowances via the main capital allowances pool.
Benefits in kind
Car benefit
The chargeable benefit that is taxable on an employee provided with private use of a company car is based on a vehicle’s list price multiplied by a percentage which is determined by the level of a car’s CO2 emissions and its fuel type.
For zero emission cars and low emission (less than 100 g/km) cars first registered after 5 April 2020, the percentage for zero emission cars is 0% for 2020/21, 1% for 2021/22 and 2% for 2022/23.
The rate for hybrid vehicles first registered after 5 April 2020 with emissions in the range 1-50g/km is 1-13% for 2021/22 and 2-14% for 2022/23, dependent on the vehicle’s “zero emission miles” i.e. its electric range: the maximum distance the car can be driven in electric mode without recharging the battery. The percentage then increases by 1% for each additional 5g/km of emissions over 50g/km regardless of the electric range of such a hybrid vehicle.
The rates are increased for vehicles that are first registered before 6 April 2020 by 1% for 2021/22, so that the range for vehicles with emissions of 1-50 g/km will be 2-14%. However, this does not apply for 2022/23. The percentage again increases by 1% for each additional 5 g/km of emissions, this still compares favourably to 37% for the highest band of CO2 emissions.
It is currently intended that the 2022/23 rates will apply unchanged for 2023/24 and 2024/25.
Fuel benefit
As electricity is not a road fuel no car fuel benefit arises on charging provided by an employer to an employee at the workplace. However, the provision by an employer of a chargepoint at the home of an employee using their own car for business travel would give rise to a benefit equivalent to the cost to the employer of doing so. (This differs if that employee has use of a company car available for private use, in which case there is no benefit.)
For more information about tax reliefs that may affect your business, please get in touch with your usual BKL contact or use our enquiry form.