Have you thought about supplying employees with the benefit of an electric car?

The opinion of electric cars is swiftly moving from a gimmick for the wealthy, to an attractive option for the everyday person. The second-hand market is starting to see electric vehicles with prices closer to conventional fuel cars than in previous years, and the mileage offered by electric vehicles is now much greater than just popping to your local shops and back.

There is still the issue of infrastructure, but all the signs are there for mass development in electric refuelling stations, and a lot of new car providers are offering free chargers for your home.

So how does this link to your employees for the 2022/23 tax year?

There are providers now who employers can engage with, where employees take an electric lease vehicle through the business. The employee pays the lease under a salary sacrifice agreement, making a saving on the lease cost of up to 58.25%, depending on the tax band and National Insurance rate.

Employers would also make a Class 1 National Insurance saving of 15.05% (2022/23) on the value of the lease, assuming the employee earns over the Secondary Earnings Threshold (SET) of ￡758 per month.

There would be a benefit in kind (BIK) created on the fully electric car, based on 2% (2022/23 rate) of the list price annually, with employers paying 15.05% (2022/23) Class 1A National Insurance on the benefits value. Employees would incur tax at their marginal rate on the BIK, which would be either deducted through payroll (if employer is registered for payrolling of benefits) or using a P11D and having their tax code adjusted.

While the BIK percentage for fully electric vehicles is so low, depending on the list price of the vehicle, the employer should make a saving on lease agreement, while offering a very tangible benefit to their employees at a reduced cost to them.

It is also worth noting that if a business purchases a new and unused fully electric car, it will be eligible for 100% tax relief in the form of First Year Allowances. If the electric vehicle purchased is not new and unused, then tax relief is given at 18% per annum on the writing down allowance of the vehicle.

James Alesbury

Director

HWB Accountants

[email protected]