Company Owned Electric Vehicles

The media has recently been awash with climate change activists, such as Greta Thunberg and the extinction rebellion group, trying to get the message across to the general public that the planet possibly only has a short time for substantial changes to be made to our everyday lives before there is irreversible climate change.  As part of the governments green initiatives, changes to encourage the use of electric vehicles have been set out in the draft legislation to provide a range of tax cuts that we will discuss in this blog.

Company Car Taxation

The draft finance bill 2020 sets out the changes to the way in which CO2 emissions will be based on for all new cars from April 2020.  The current system using the New European Driving Cycle (NEDC) will be replaced by the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), where most appropriate percentages are reduced by 2 percentage points in 2020/2021 compared to the current appropriate percentages for cars.

The NDEC procedure will still apply for all cars registered on or after 1 October 1999 but before 6 April 2020.

Due to the 2-percentage points reduction, zero emission vehicles will see their appropriate percentage reduced from 2% to 0% for 2020/2021, then increasing by 1% in each of the following 2 years.

Therefore, from 6 April 2020 for 1 year, a zero-emission vehicle made available to an employee will be completely tax free.  At the time of writing this was in the draft finance bill 2020 legislation and had not passed into law.

Related Company Car benefits

HMRC do not consider electricity to be a fuel, therefore the petrol/diesel advisory fuel rates cannot be used to reimburse employees for business journeys, however HMRC introduced a new rate from 1 September 2018 of £0.04p per mile for fully electric company cars.

Other tax-free benefits of having an electric company car include:

  • The cost of charging an electric vehicle at work
  • The cost of installing a vehicle charging point at the employee’s home
  • Employer pays for charge card of £100 per year to allow individuals unlimited access to local authority vehicle charging point. 

Employer’s National Insurance

From 6 April 2020, as the benefit in kind charge on an electric vehicle will be 0%, the class 1A benefit in kind, which is the cost to the employer of providing benefits in kind to employees, will also be nil.

Capital Allowances

Most cars purchased by companies will be due tax relief on a writing down basis at either the main rate (18%) or the special rate (8%).  However, for new and unused cars with CO2 emissions of 50 g/km or less, there is a special enhanced capital allowance of 100% available.  With a main rate writing down allowance, after 8 years the company will still only have relieved 80% of the cost of the vehicle, but with the enhanced capital allowance regime available to low emission cars, the full cost can be relieved in year one.

For more information on this subject please contact Alex Gardner or a member of our tax team on 01772 821021