Considerations for Company Electrical Cars

Considerations for Company Electrical Cars

Electric cars have attracted significant tax benefits for several years now, but the comparatively high cost and practical and performance issues have always meant that ownership remained low.

Expenses:

For employees who use their own vehicle for business use, there are three options:

1.??????No reimbursement by the employer for business miles so the employee must claim relief from HMRC at the AMAP (Approved Mileage Allowance Payments) rates – i.e. 45p for the first 10,000 miles and 25 thereafter;

2.??????Partial reimbursement with the employee claiming tax relief on the difference;

3.??????Reimbursement by the employer at the AMAP rates and no further relief is due.

The AMAP rates have not been updated for the past 12 years, and surely should be reviewed given the current fuel costs, but this is another matter. These rates meant the employee can claim mileage when using a privately owned electric vehicle at work.

If using a company-owned electric vehicle, there are different advisory rates that can be used to reimburse business mileage without a benefit in kind arising for fuel. The current advisory mileage rate for electric company cars is ￡0.05 pence per mile.

Charging Points:

In September 2021 the Government announced additional funding of more than ￡500m will be made available for the installation of rapid charging points, to alleviate concerns held surrounding the practicalities of using fully electrical vehicles, therefore encouraging and supporting business owners with potential tax benefits.

Some employers could be eligible to receive the Workplace Charging Scheme, a Government grant where up to 75% of the total costs of the purchase and installation of EV charge points is provided, capped at a maximum of:

·????????￡350 per socket

·????????40 sockets across all sites per applicant

But let’s face it, charging solely at the workplace, in most situations will not be sufficient, and employers will need to consider if they provide charging stations at the employee’s home address to charge the vehicle. If the employer does decide to do this, the charging benefit would be taxable. The cost of charging electric cars remains comparatively low, compared to petrol and diesel cars, even with the increase in electricity prices.

Cost of acquiring or leasing:

For personal capital expenditure on acquiring a new asset (such as a house or car), there might not be any tax relief on purchase. If the asset falls into the capital allowance rules for assets used in a business then there could be a deduction from taxable profits, so the business could have a tax saving from acquiring the car.?

If a car is purchased outright or on a hire purchase arrangement then capital allowances should apply. For a new and unused electric car, 100% relief should be due in the year of purchase. If the car is a hybrid then the treatment is more complex to confirm.

This is a very beneficial arrangement compared to purchase of a diesel car with emissions over 50 g/km, where only 6% of the cost will qualify for a deduction in the year of purchase, with the balance of the cost rolling forward to the following year for a further 6% deduction. This repeats until the balance is used up.

Compared to a fully electric car, where relief is due in full in the first year, a non-electric car could take many, many years to receive full relief.

If an electric car is leased then a deduction should be due for the lease costs, instead of claiming capital allowances.

Further details of the capital allowance position can be found by viewing this link Considerations for Company Electrical Cars — WR Partners

Employee position:

The provision of the car by an employer will be a taxable benefit in kind if it is available for use by the employee or their family for private mileage, broadly speaking. The taxable benefit for a car is calculated in a very specific way and starts with the list price of the car (which is not necessarily the purchase price).

Deductions from the list price are allowed for certain items such as capital contributions toward the cost by the employee etc. A percentage is then applied to the balance. The percentage depends on the emissions of the car and the number of electric miles the car can perform on a battery.

For a fully electric car, which has 0 g/km emissions, the current percentage is 2% for the 22/23 tax year. This means that an employee using an electric car with a list price of ￡40,000 will have a benefit in kind of ￡800.

By comparison, a diesel car has an additional 3% added due to the type of fuel, up to a maximum of 37%. Therefore, a diesel car with emissions of 140 g/km and a list price of ￡40,000 will have a benefit in kind of ￡14,800.

If fuel is provided for a company car for private miles, then an additional benefit arises. This is calculated by using the same percentage against the cash equivalent (currently set at ￡25,300 for 22/23). This means the fuel benefit on an electric car with a percentage of 2% will be ￡506 compared to ￡9,361 for the diesel car mentioned above.

The employee will have to pay income tax on the benefit in kind figures and the business will also have to pay Class 1A NIC (currently 15.05%). For an electric car with a benefit of ￡800, a higher rate taxpayer will pay income tax of ￡320 whereas income tax of ￡5,920 would be charged on a diesel car with emissions of ￡14,800.

Further details of the BIK position can be found by viewing this link Considerations for Company Electrical Cars — WR Partners

Conclusion:

Electrical vehicles will more than likely provide cost savings to both the employer and employer, although the upfront costs of purchasing a vehicle may be a large pill to swallow. Additional savings can also be demonstrated with electric vehicles being exempt from congestion charges and road tax.

Car ranges are still an important issue, particularly for employees who are expected to travel large distances over the course of one day.

More planning may be required in terms of planning the route taken and the location of charging points, plus charging time will more than likely be built into the time schedule, meaning a chunk of employees' working day will be spent charging a vehicle, which isn’t necessarily time well spent.?Charging a car will take much longer than a regular fuel stop too.

There is also the consideration of what to do if any charging points are fitted by the employer at the employee’s home address. The easiest and most straightforward approach would be for the charging point to be returned, but who pays for the removal of the product, as it’s not as simple as unplugging and returning a unit? Also what if there is an employment dispute and the employee is not co-operating, and refusing to return the charging point? There is a strong argument that the employer cannot attend an employee’s private property, as this could be considered as trespassing or harassment.

So whilst the cost savings will obviously seem appealing, employers need to also consider the operational factors if they are thinking of moving to electric.?