Tax Incentives for Electric Vehicles

There’s no denying it – environmentally-friendly electric cars are the future.

And as companies shift their focus towards greener ways of doing business, which includes looking into more eco-friendly ways of staff commuting, we can get acquainted with a number of tax incentives recently made available by the UK government for businesses looking to get in on the action.

So, what’s on offer?

Electric Vehicles & Salary Sacrifice

As the demand for more eco-friendly business solutions continues to grow, it may be possible for you to lease an electric car through a salary sacrifice scheme, which is a potentially lucrative option for clients who are higher or additional rate taxpayers.

What would happen is the sacrifice would involve monies deducted from gross income (before tax and national insurance are deducted), rather than paying for a lease via a net income. This also means that if the client is at the lower end of the higher rate band, it will reduce the final income tax rate, providing the salary sacrifice was to reduce their taxable income into a lower rate bracket.

To eliminate any confusion, leasing an electric car through a salary sacrifice scheme is no different than that of a pension scheme or even a cycle to work scheme. The car is initially leased by the employer and then leased to the employee with a deduction taken from their salary.

It doesn’t stop there either – the vehicle can also be purchased via a salary sacrifice scheme.

Electric Vans & Benefits

What about electric vans?

Electric vans can be a great investment for clients – particularly if they wish to use it outside of their work commitments. Why? Because, as of April 2021, there aren’t any tax implications for using a company-owned van outside of business hours – providing the van is zero-emission, of course.

Road Tax for Electric Vehicles 

When it comes to incentives, rates are another key factor. 100% electric vehicle rates are currently zero, and will remain so until at least 2025. Reduced rates apply to plug-in hybrid electric vehicles, but it’s worth noting that some VED may be payable, depending on the emissions of the hybrid.

Electric Bikes

Electric bikes still fall under the cycle-to-work umbrella (which requires users to cycle to work at least 50% of the time), meaning they don’t require any P11D reporting. Instead, an employer pays for the bike (plus any requested accessories) and then the employee repayments are deducted from their salary (tax-efficiently), which also saves the employer 13.8% NIC. Also – if the employer is VAT-registered, they can recover the VAT, as well as claiming 100% capital allowances.

At present, there aren’t any additional benefits for travelling to work via an electric motorbike or scooter.

Super deductions, capital allowances & electric vehicles

In April 2021, the UK government extended the first-year capital allowances to encourage a continued boost in the purchases of (new) xero-emission e-vehicles. So, providing revenue from the company is suitable, 100% of the cost can be claimed – and with no upper restrictions on the value of the vehicle.

Furthermore, a super-deduction capital allowance which offers 130% first-year allowance on expenditure until March 2023. This includes electric vehicle charging points too (but only if the company uses the charging point within their own business).

E-vehicle charging

If a company’s staff can charge their e-vehicles on site for zero cost, this means it doesn’t qualify as a taxable benefit – but the condition is that the charging facilities are on (or near) the business’s premises.

Privately owned vehicles and charging expenses

When it comes to private e-vehicles used for business commuting, staff are able to claim a tax-free mileage allowance of 45p per mile for the first 10,000 miles driven and 25p per mile for any additional miles driven on an annual basis.

VAT

The VAT rules do not change just because a vehicle is electric, therefore when a vehicle is purchased, it is not recoverable, unless it can be proven that the vehicle is 100% used for work purposes only.

Having said that, if an e-vehicle is leased, 50% of the VAT can actually be recovered (as in the VAT paid on the leasing charge).

BIK (Benefit in Kind) for E-vehicles

Taxable BIK in the circumstance of a company car is subject to the carbon emissions. As of 2022, zero-emission cars are taxed at 1% of the vehicle’s list price when new (plus accessories). This will increase to 2% for 2022-23 and will remain at this rate for 2023-24. 

In the case of e-cars, the electric-only mileage range will determine a taxable percentage of between 2-14%.

Government grants for E-vehicles

Government grants are now available (up to £1,500) to help towards the cost of electric cars and vans (up to £2,500) for vehicles that cost less than £32,000. It’s worth noting, however, these grants aren’t available for hybrid cars.

Need a Helping Hand?

Managing all your monetary needs as a business owner can, at times, be time-consuming and overwhelming. Why not let us help? At Mercury Accounting & Financial Services Ltd, we will take care of your business’s financial endeavours to allow you the time to manage your other tasks. Find out more today.