Electric Company Car & the Tax benefit

The majority of company car users are aware that using the vehicle for any kind of personal use would result in a hefty income tax bill. The income tax rate will be larger the more costly the vehicle is and the higher its CO2 footprint is, as this is how HMRC taxes the deemed value of the advantage when having a work car.

A percentage of the car’s original list price is allocated as the benefit in kind, and the proportion grows as the car’s CO2 emissions rise. For this reason, many company vehicle owners are increasingly considering electric vehicles as a tax-efficient option, whether it be a plug-in vehicle or self-charging hybrid vehicle.

By converting to a hybrid or completely electric car with a substantially lower CO2 rating, the CO2 rating for a purely electric car might be as low as 0g/km. Whereas if you now drive a petrol-powered car with a CO2 rating of 145g/km, you could significantly reduce your benefit in kind tax bill. Even at 0 g/km, there will still be a gain in kind, although it might only amount to 1% of the car’s original list price as opposed to 34% or 35% for a petrol-powered vehicle rated at 145 g/km. If a vehicle was originally registered on or after April 6, 2020, the benefit in kind charge is 1% lower for this tax year only, although the benefit in kind is raised for all vehicles starting in April 2022.

How the costs and charges can affect you

Only fully electric and hybrid vehicles with a range of at least 131 miles on a single charge are subject to the 1% extremely low benefit-in-kind fee. For a car with a range of less than 30 miles on a single charge, the advantage progressively rises to 13%.

Motorists of company vehicles whose personal petrol is covered by their employer must additionally pay an extra income tax charge depending on the benefit’s perceived worth. This fee is computed by taking a set amount—£24,600 for 2021–2022—and using the same percentage rate used for the vehicle benefit itself. For the vehicle in the aforementioned example with CO2 emissions of 145g/km, this will be £8,118, but for an all electric car with zero emissions, there may be absolutely no benefit.

This is due to the fact that, as of April 6, 2018, there is no longer a taxable vehicle fuel advantage in cases where all workers have access to energy for an electric car at the office, regardless of whether the electricity is subsequently utilised for business or personal miles. The cost of the power used to recharge a company car at home and the subsequent reimbursement from the employer will be considered income. However, the employee may only submit a claim using the HMRC recommended rates, which are presently 4p per mile for fully
electric vehicles, for the energy costs associated with business miles.

Concluding the impacts and benefits

Last but not least, switching to an all-electric fleet of work cars has advantages for employers. The whole value of the advantages they get (car and fuel benefits) is subject to a 13.8% National Insurance penalty; in this scenario, switching to electric vehicles will be an added benefit because the benefit-in-kind costs that result will be significantly lower.

The Health and Social Care Levy’s additional 1.25% contribution requirement for employers and employees, which was announced in September 2021 but will take effect in April 2022, further supports the case for considering all-electric (or hybrid vehicles with electric-only miles) vehicles at lower benefit-in-kind values.

For more information be sure to visit www.allnumbers.co.uk