Service: Taxation

Tax on company cars and cycles: Why you should go electric

By Colin Burns

20 Apr 2021

Petrol has peaked, as half of drivers are considering switching to a fully electric car!

Directors and employees who drove fully electric company cars had a nil taxable benefit for 2020/21.

For the previous tax year, 2019/20, fully electric company cars were taxed at 16% of the list price.

However, very modest benefit in kind of charges now apply for all electric vehicles which have a huge advantage over diesel and petrol fueled cars.

Year Taxable Benefit
2020/2021 Nil
2021/2022 1%
2022/2023 2%

 

The March 2020 Budget confirmed that employees with fully electric company cars would be taxed on the 2022/23 benefit in kind rates of 2% for 2023/24 and 2024/25.

An example 

Bruce has an advertising business. He is a director of the company. The business recently bought Bruce a fully electric company car. They bought the Renault Zoe. Its list price is £27,000.

The company got 100% capital allowances on the purchase for the current fiscal year, 2021/22, 

The benefit in kind is just £270 or 1% of £27,000. The company has to pay Class 1A National Insurance at 13.8% on this benefit figure. 

For 2022/23 and the next two fiscal years, Bruce will be taxed on £27,000 @ 2% = £540.

This is still a very low taxable benefit in kind. If he is a 40% taxpayer, he will only pay tax of £216 for 2022/23 and beyond re this fully electric car!

The list price must include the cost of the battery even if it is leased separately. HMRC’s view (quite understandably) is that the car cannot move without its battery. It is integral to the car.

Salary Sacrifice

If an employee has a company car provided by their employer for them under salary sacrifice, the taxable benefit is the higher of the amount of the salary given up or the taxable car benefit.

However, the salary sacrifice anti-avoidance legislation does not apply if the company car has CO2 emissions of less than 75g/km.

It is therefore possible for an employer to provide fully electric and certain hybrid company cars, pursuant to a salary sacrifice arrangement, and for the employee to retain the tax benefits.

Government Grants

The government’s ‘plug in’ financial grant is designed to encourage and increase the purchase of electric cars in the UK.

The grant is restricted to cars with a purchase price of £35,000 and is capped at £2,500 towards the cost of a plug-in electric car.
There are various conditions to be met in order to get this grant:

  1. It must be brand new.
  2. It must have CO2 emissions of less than 50g/km.
  3. It can travel at least 70 miles without any emissions at all (its electric range).
  4. It must cost less than £35,000. This figure is the recommended retail price (RRP), and this includes delivery fees and VAT.

All fully battery electric cars (costing less than £35,000) will qualify, but very few hybrids will qualify as they will not have the required electric range.

The dealer will reduce the vehicle’s price by the value of the grant.

There are also government grants for certain electric motorcycles and mopeds with maximum grants of  £1,500, or if lower than 20% of the purchase price. 

There is also a government grant towards the cost of an electric van.

These electric vans must have CO2 emissions of less than 50g/km and must be able to travel at least 40 miles without any emissions at all.

The government grant for an electric van is 35% of the purchase price, up to a maximum grant of £3,000. 

Electric Charging Points and Charging Costs

If a business installs, at their workplace, charging points for electric vehicles, they can claim 100% FYAs for these costs.

If an employer allows its employees to charge up their own electric cars each day at the workplace, there is no taxable benefit in kind. This is a very good tax-free perk! The tax legislation does not treat electricity as fuel. The S.149 ITEPA 2003 fuel benefit charge does not apply to electricity supplied by an employer. Accordingly, no taxable benefit in kind will arise if an employer pays to charge an electric company car (owned by an employee) at the workplace, irrespective of the level of the employee’s private mileage.

The following conditions must be met, in order for the exemption to apply:

  1. The charging facilities must be provided by the employer, at or near the employee’s workplace. 
  2. The electric charging must be available to all the employer’s employees generally, or all the employer’s employees generally at the employee’s workplace.
  3. The charging facilities must be for the battery of a vehicle in which the employee is either the driver or a passenger.

Charging point installed at an employee’s home 

Example 1 

X Ltd employs Eric. It provides him with a fully electric company car, the Nissan Leaf.

X Ltd also pays for a charging point at his home, which costs the company £500.

Question: Is there a benefit in kind charge on Eric for the provision of the charging point, provided by the employer, at his home, in conjunction with his company car?

Answer: The fitting of the charging point, in the circumstances illustrated in the above example, will not give rise to a benefit in kind.

There is no taxable benefit. S.149(4) ITEPA 2003 extends the exclusion from the car fuel charge to any ‘facility or means for supplying electric energy’. Accordingly, the benefit in kind charge does not apply.

Additionally, S.239(4) ITEPA 2003 specifically excludes a benefit connected with a taxable car.

X Ltd can therefore provide a vehicle charging point at Eric’s home, in conjunction with his company car, without a taxable benefit in kind arising.  
 
Example 2

Another employee of X Ltd, Toby, drives his own fully electric company car, a Ford Focus Electric.

X Ltd provides an electric charging point at his home, also costing £500. This is not provided in conjunction with the provision of a company car.

Accordingly, this would result in an annual taxable benefit in kind, which would be 20% of its market value, namely £100 (£500 x 20%) for each year of use.

If the charging point, say 3 years later is transferred to Toby, for him to own, careful consideration of the tax position is needed.
A taxable benefit would result, by virtue of S.206(3) ITEPA 2003.

If the ownership of an asset is transferred to an employee, in these circumstances, then he is charged to tax at that time, on the higher of:

a) The market value of the asset at the time of the transfer of ownership (say £50).
b) The market value at the time of the original provision, less the total amounts charged on any employee as a BIK for the use of the asset.

Illustration...
                    £
                500
Less        300 (£100 x 3 years)
              £200  
The taxable benefit on Toby will be £200.

The Company Charging Up the Electric Vehicles 

Example 3 

X Ltd pays for an electric charge card for Eric costing £150 to allow Eric unlimited access to local authority vehicle charging points.

No taxable benefit would arise on Eric because of S.202(1) ITEPA 2003 and S.239(4) ITEPA 2003.

However, if the same facility had been provided to Toby for his own electric car, his taxable benefit would have been £150.

Example 4

Eric pays for the electricity to power up his company car each week from his own home. Eric does not do any business mileage in this fully electric company car, only private mileage.

X Ltd reimburses Eric for the cost of powering it up from his own home.

The reimbursement will be taxed as earnings for Eric.

The Company Reimbursing the Driver for Business Mileage

Example 5 

Eric is now required to do business mileage in his company electric car.

X Ltd can now pay Eric 4p per mile to reimburse him for the cost of the electricity for his business journeys with no tax consequences.

This tax free reimbursement and rate only applies to company owned electric cars, not to privately owned electric cars.

Example 6

If Toby uses his own electric car for business journeys, then X Ltd can pay Toby the usual tax free mileage allowance of 45p per mile for the first 10,000 miles driven by him in the tax year. His additional business miles would be reimbursed at 25p per mile.

The Electric Vehicle Home-Charge Scheme

If the employee owns or leases an electric car, they could be entitled to a government grant under the electric vehicle home charge scheme towards the cost of installing an electric charge point. The individual must have dedicated off-street parking at their property.

The electric vehicle home charge scheme is a government grant that provides a 75% contribution to the cost of an electric charge point and its installation. The grant is capped at £350 (including VAT) per installation.

An individual could apply for two such grants towards electric charge points at the same property, so long as they have two qualifying vehicles. The individual must be resident at the property.

Electric Vans

Electric vans are becoming very popular with directors and employees.

From 6th April 2021 onwards, there will be a zero van benefit charge for employees who drive fully electric vans and use them privately. So the tax on this electric vehicle is reducing permanently downwards to nil!

Electric Bicycles

An e-bike, put simply, is an electric-assisted pedal bicycle. It is a regular bicycle which has, in addition, an electric motor and battery.

The electric motor will provide power assistance when the cyclist is pedalling, to minimise the amount of effort required.

E-bikes can make cycling accessible to individuals who would otherwise find it difficult. It makes the journey much quicker and easier!

An e-bike will offer the individual between 25-100 miles of pedalling enhancement on a single charge.

Recharging the Battery

It is quite usual for an e-bike to come with a 36V battery which will normally take approximately 4 hours to charge from 0 to 100%.

The running costs of e-bikes are indeed very low. 

The Tax Position for the Employee

It is vital that the employee is using an e-bike (i.e. a bicycle with an electric motor) rather than an electric motorbike.

An electric bicycle must not have a motor-powered top speed in excess of 15.5 miles per hour.

Additionally, the electric motor must have a maximum power output of 250 Watts. Anything above this would mean that the employee would be riding an electric motorbike, with much higher personal tax consequences.

A popular e-bike is the Cube Reaction Hybrid Pro 625 Mountain Electric Bike.

The cost of this e-bike is £2500.

The Cycle to Work Scheme

An e-bike will qualify for the “Cycle to Work Scheme”.

Accordingly, an employer can provide an expensive e-bike to an employee without a P11D benefit in kind arising.

The Cycle to Work Scheme assists an employee and spreads the cost of the bike via monthly tax-free instalments that the employer pays to the employee.

How the scheme works

  • The employer registers with the scheme provider.
  • The employee chooses the e-bike he wants.
  • The employer purchases it.
  • The employee pays the employer back for the purchase through monthly instalments taken through the payroll.
  • The salary sacrifice periods are for a minimum of 12 months, and can possibly be up to 48 months.

The monthly repayments for the e-bike are taken from the employee’s gross salary.

Accordingly, this will result in the employee paying less tax and NIC every month. At the end of the Cycle to Work Scheme, the employee will have saved up to 32% of the cost of the bike if he is a basic rate taxpayer. If the employee is a higher rate taxpayer, the tax saving will be even greater.

There is an end-of-scheme payment due, because technically the employee has been loaned the e-bike and at the end of the period, has to purchase it at a “fair market value”.

This normally works out at approximately 7%, however some qualifying scheme providers only charge £1.

The scheme is easy to administer for the employer.

The employer will also save NIC (employer’s contributions of approximately 13% on the cost of the bike).

To summarise: 

  • The employer pays for the bike and saves 13% NIC in the process.
  • The employee repays the cost of the bike via monthly instalments and achieves a healthy tax saving to boot.
  • There will be no P11D benefit in kind taxable on the employee regarding these arrangements.
  • A happier, healthier, more productive staff member who must be pleased with his additional tax saving!

Electric Motorbikes

There are no specific tax advantages for an employee driving a company electric motorbike privately.

If an employee has a company electric motorcycle, he is taxed on 20% of its value plus its running costs.

Example 7

A company acquires a BMW C Evolution electric moped which cost them £14,830.

They provide it to Eric, their employee, to use privately. The employer also pays for its running costs for Eric to use in the 2021/22 tax year of £2,700.

Eric will be taxed on... 

£14,830 @ 20% = £2,966. 

plus £2,700 running costs. 

Total taxable benefit = £5,666. 

Vehicle Excise Duty

The vehicle excise duty (VED) rates for all fully electric vehicles have been reduced to nil at least until 2025.

Additionally, fully electric vehicles costing more than £40,000 are also now exempt from the “expensive car supplement” on VED. The previous additional supplement of £320 is no longer payable.

There are reduced VED rates which apply to plug-in hybrid vehicles.

Hybrid Company Cars

Hybrid cars are, in general terms, cars that have both a petrol engine and an electric motor.

There are now various considerations to take into account to determine the taxable benefit for an employee driving a hybrid company car.

The percentage of the list price of the hybrid company car, which will be taxed as a benefit in kind, will be determined by the CO2 emissions of the car. Additionally, its electric range will have to be taken into account.

Accordingly, the number of miles that a hybrid company car can do on battery power alone, before reverting to petrol (its electric range) will be a big factor.

The more miles that a hybrid car can do on battery power, the less the taxable benefit (see the car benefit tables).

The percentage will also depend on whether the car was first registered on or after 6th April 2020 (see the two differing car benefit tables).

The prescribed percentage for 2021/2022 is 1% for a hybrid company car if:

  • It is first registered on or after 6th April 2020;
  • It has a CO2 emissions figure of between 1 – 50; and
  • It has an electric range figure of 130 miles or more.

The prescribed percentage for 2020/21, for the same hybrid car, but first registered before 6th April 2020 is 2%.

Until the 2024/25 fiscal year, the two tables of company car benefit in kind rates and percentages will be in operation and used. There is one table for vehicles first registered prior to 6th April 2020, and another different table for vehicles registered on or after 6th April 2020.

Cars first registered before 6 April 2020

CO2 (g/km) Electric range (miles) 2021-22 (%) 2022-23 (%)
0 N/A 1 2
18264 >130 2 2
18264 70-129 5 5
18264 40-69 8 8
18264 30-39 12 12
18264 <30 14 14
51-54   15 15
55-59   16 16
60-64   17 17
65-69   18 18
70-74   19 19
75-79   20 20
80-84   21 21
85-89   22 22
90-94   23 23
95-99   24 24
100-104   25 25
105-109   26 26
110-114   27 27
115-119   28 28
120-124   29 29
125-129   30 30
130-134   31 31
135-139   32 32
140-144   33 33
145-149   34 34
150-154   35 35
155-159   36 36
160+   37 37

 

Cars first registered from 6 April 2020

CO2 (g/km) Electric range (miles) 2021-22 (%) 2022-23 (%)
0 N/A 1 2
1-50 >130 1 2
1-50 70-129 4 5
1-50 40-69 7 8
1-50 30-39 11 12
1-50 <30 13 14
51-54   14 15
55-59   15 16
60-64   16 17
65-69   17 18
70-74   18 19
75-79   19 20
80-84   20 21
85-89   21 22
90-94   22 23
95-99   23 24
100-104   24 25
105-109   25 26
110-114   26 27
115-119   27 28
120-124   28 29
125-129   29 30
130-134   30 31
135-139   31 32
140-144   32 33
145-149   33 34
150-154   34 35
155-159   35 36
160-164   36 37
165-169   37 37
170+   37 37
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