How are electric cars taxed in 2021/2022?

As per the company car legislation during the year 2020/21 it was possible to enjoy an electric company car as a tax-free benefit.

Unfortunately, this will no longer be the case for the current year 2021/22. However an electric and/or low emission car remains still an interesting tax-efficient benefit.

As per the mentioned legislation, a taxable benefit arises in respect of the private use a company car by an employee.

The taxable amount (i.e. the cash equivalent value) is a percentage of the list price of the car and its optional accessories, after deducting any employee capital contribution up to a maximum of ￡5,000.

The above-mentioned amount is reduced where the car is not available throughout the relevant tax year (this is very relevant during this smart working period), and it is further reduced to reflect any employee contributions required for his/her private use.

The previously mentioned percentage (as per the legislation it is technically called the "appropriate percentage ") depends on the level of the company car’s CO2 emissions.

For zero emission cars, the appropriate percentage for electric cars is 1% for 2021/22 (for 2020/21 it was set at 0%).

This means that despite the legislation changes the tax cost of an electric company car remains very low in 2021/22.

See below a relevant example:

Dan has an electric company car with a list price of ￡50,000 and this car was first registered on the day 1st of April 2020.

For 2020/21, as we have seen above the appropriate percentage for an electric car was 0%, meaning that Dan was able to enjoy the benefit of the private use of the car tax-free.

For 2021/22, the appropriate percentage is only 1% therefore the taxable amount is ￡500 (1% of ￡50,000).

If the mentioned employee is a higher rate taxpayer, he will only pay tax of ￡200 on the company car benefit. If Dan is a basic rate taxpayer, he will pay ￡100 in tax. For the year 2022/23 the appropriate percentage will increase to 2%.

Class 1A National Insurance of ￡69 (￡500 @ 13.8%) will be the cost incurred by his employer.

If you do not fancy a Tesla as company car, please note that it is still possible to have a very tax efficient car by choosing a low emission model.

For the 2020/21 and 2021/22, if you choose a low emission model the appropriate percentage depends on the date on which the car was first registered (before 6 April 2020/on or after 6 April 2020) and it depends on its CO2 emissions as well.

For cars within the 1—50g/km band (low emissions cars), there is a further important factor to take into account: the so called "zero emission mileage", that is the distance that the car can travel after a single charge.

The appropriate percentages applying for low emission cars for this relevant fiscal year are:

Appropriate percentage for low emission cars - 1-50g/km (cars registered on or after 6/4/2020)

Electric Range

• More than 130 miles (electric range) - 1%
• Range: 70—129 miles - 4%
• Range 40—69 miles - 7%
• Range 30 – 39 miles - 11%
• Less than 30 miles - 13%

If we assume for the same employee a list price of ￡50,000, the taxable amount for a car first registered on or after 6 April 2020 with an electric range of at least 130 miles is ￡500.

A lower tax bill is still a very good reward for deciding to go green.

See also ITEPA 2003, s. 139

Angelo Chirulli

Director of Tax

[email protected]