The two biggest benefits of an electric company car are the upfront tax reliefs for the employer and the vastly reduced benefit in kind for the employee.
For the employer:
Corporation Tax (CT) relief will vary depending on how the vehicle is purchased.
If the vehicle is brand new (not second hand), and fully electric with co2 emissions of 0g/km:
If purchased outright (or on HP), its cost will qualify for 100% tax relief at the marginal rate of CT.
If purchased via HP, CT relief will be available on the monthly payments.
If it is leased, the monthly lease payments are allowable for CT.
If second hand or hybrid:
If the vehicle purchased is second hand, or is not fully electric but has CO2 emissions of less than 50g/km, Capital allowances are available @ 18% on a reducing balance basis. If for example the car cost £50k, then in year one you would get CT relief on £9,000, year 2 £7,380 and so on.
From a VAT perspective, VAT can only be reclaimed if there is NO private use whatsoever.
For the employee:
The provision of a company car to an employee gives rise to a benefit in kind if there is any personal use of the vehicle. Electric cars currently attract a very low benefit in kind which vary depending on its CO2 emissions.
For a zero-emission electric car, the current percentage applied to the list price (which must include the cost of the battery) is just 2%.
This percentage is set to remain until 2024/25. Thereafter, it will increase by 1% each year until 2028. Whilst there is no guarantee that such a low benefit in kind rate will continue, significant income tax savings for the employee are available compared with the provision of a large polluting car which can attract a benefit in kind percentage of up to 37%.
Income Tax and National Insurance is payable on the value of the benefit in kind – and the company would also be liable to employers NIC. However, HMRC have recently confirmed that employers are able to reimburse part of their employees’ electricity costs for charging their electric company cars at home without giving rise to a benefit in kind.
If you are considering providing your employees with electric (or hybrid) company cars, do call us on 01223 810100 so we can help you determine the effective cost for your business and your employees.