Replacing your work car with an electric vehicle has many tax incentives that might help you save money while also protecting the environment.
Electric cars’ popularity is growing as they become more affordable and the government offers many tax breaks for low-emission automobiles. We examine the tax advantages and what you should be mindful of when choosing an electric or low-emission car.
National P11D/Class 1A Insurance
The key component of the calculation is the application of a percentage to the list price of a business automobile. This proportion is calculated by the vehicle’s CO2 emissions. Electric-only vehicles were subject to a multiple of 0% beginning in April 2020, although this will grow in subsequent tax years (see table below). There are also discounts for electric hybrids based on their electric-only range.
The percentage utilized in the tax incentives for electric vehicles (registered before 6th April 2020)
| Vehicle CO2 | 2020/21 | 2021/22 | 2022/23 |
|---|---|---|---|
| 0g/km | 0% | 1% | 2% |
| 1-50g/km (electric range >130 miles) | 2% | 2% | 2% |
| 1-50g/km (electric range 70-129 miles) | 5% | 5% | 5% |
| 1-50g/km (electric range 40-69 miles) | 8% | 8% | 8% |
| 1-50g/km (electric range 30-39 miles) | 12% | 12% | 12% |
| 1-50g/km (electric range <30 miles) | 14% | 14% | 14% |
Percentage used in tax benefits of electric cars (registered after 6th April 2020)
| Vehicle CO2 | 2020/21 | 2021/22 | 2022/23 |
|---|---|---|---|
| 0g/km | 0% | 1% | 2% |
| 1-50g/km (electric range >130 miles) | 0% | 1% | 2% |
| 1-50g/km (electric range 70-129 miles) | 3% | 4% | 5% |
| 1-50g/km (electric range 40-69 miles) | 6% | 7% | 8% |
| 1-50g/km (electric range 30-39 miles) | 10% | 11% | 12% |
| 1-50g/km (electric range <30 miles) | 12% | 13% | 14% |
Vans powered by electricity
In April 2021, the taxable advantage for having private usage of a zero-emission van was decreased to zero.
In 2020-21, the electric van was taxed at 80% of the standard van benefit, which was £3,490. As a result, the fee was £2,792.
There is no taxable advantage if the van is exclusively utilized for work trips and regular commuting, regardless of fuel type.
Beginning in April 2021, a zero-emission van will be taxed at 0% of the benefit fee, resulting in no benefit in kind payment for an electric van regardless of usage.
Electric bikes
When considering the tax implications of two wheels rather than four, we must differentiate between a bicycle with an electric motor and a motorcycle. An electric bicycle must be pedal-assisted and cannot exceed 15.5mph with a motor-powered peak speed, and the electric motor must be less than 250 watts in power. Anything over this would be considered a motorcycle.
We need to differentiate between the two since they have quite different tax treatment. An electronic bicycle will still qualify for the Cycle To Work Scheme and may be delivered without a P11D benefit in kind arising, as long as the scheme’s conditions are fulfilled.
A motorcycle, on the other hand, has no unique tax benefits and is taxed under standard use of asset regulations.
Allowances for capital
For expenses made before April 1, 2021, a 100 percent First Year Allowance (FYA) was provided for a new automobile that is ‘electrically-propelled’ or has minimal CO2 emissions. A automobile that is ‘electrically propelled’ is one that is pushed only by electricity (i.e. it is an All Electric Vehicle, or AEV). A automobile with minimal CO2 emissions has emissions that do not exceed 50g/km (typically, a Plug-in Hybrid Electric Vehicle, or PHEV).
The FYA is only available for new electric and zero-emission vehicles purchased on or after April 1, 2021.
Vehicles that do not qualify for an FYA are assigned to a pool based on an emissions threshold. For expenditures spent on or after April 1, 2021, the emissions level is presently set at 50g/km. Expenditure on a vehicle that meets the emissions criteria is assigned to the main rate pool (18% WDA per year), whereas spending on a car that exceeds the threshold is allocated to the special rate pool (6 percent WDA).
The following tables summarize the rules:
Expenses incurred prior to April 1, 2021
| Type of car | Emissions | Capital Allowance |
|---|---|---|
| New | Electric | 100% FYA |
| CO2 up to 50g/km | 100% FYA | |
| CO2 over 50g/km and below 110g/km | 18% WDA | |
| CO2 more than 110g/km | 6% WDA | |
| Used | CO2 up to 110g/km | 18% WDA |
| CO2 more than 110g/km | 6% WDA |
Expenditure incurred on or after 1st April 2021
| Type of car | Emissions | Capital Allowance |
|---|---|---|
| New | Electric | 100% FYA |
| Zero | 100% FYA | |
| CO2 between 1g/km and 50g/km | 18% WDA | |
| CO2 more than 50g/km | 6% WDA | |
| Used | CO2 up to 50g/km | 18% WDA |
| CO2 more than 50g/km | 6% WDA |
Electric charging stations and fees
If the company installs new and underutilized charging stations for electric cars between now and March 31, 2023, it may claim a 100 percent FYA for those expenditures.
There is no taxable advantage for the supply of free power from April 6, 2018, if the firm permits workers to charge their own electric cars at the workplace.
The charging facilities must be provided at or near the workplace for this tax exemption to apply, which is the same criteria that applies to tax-free workplace parking. This tax exemption does not apply if the company reimburses the employee’s own car charging fees away from the office, such as at a highway service station.
There is no taxable fuel benefit for the driver when the employer pays for the expense of charging a company-provided electric vehicle, since electricity is not recognized as a fuel under the car or van benefit requirements.
Where the driver of a company-owned electric vehicle pays for the energy used to charge it, either from their own supply or from a roadside charging station, the employer may reimburse the employee for that cost. The employer may pay the corporate vehicle driver 4p per mile to repay them for the cost of the power consumed for work trips without incurring any tax consequences. This tariff only applies to company-owned electric vehicles; it does not apply to private automobiles.
Automobiles leased
‘Lease’ might imply a variety of things, and depending on what they mean, it can have a major influence on the amount of relief you are eligible for.
If you are essentially’renting’ it and expect to return it in the future, it is classified as an operational lease. This is distinct from Personal Contract Purchase (PCP).
This implies that if the car’s emissions are less than 50g/km, you may claim tax relief on all of the payments, implying that only automobiles with CO2 emissions less than this can claim full relief on the rental payments.
If the car’s emissions exceed 50g/km, 15% of the allowance is revoked, leaving just 85 percent available for income tax or company tax reasons.
Is it possible to recover VAT on an electric vehicle?
Under present legislation, an electric vehicle is still classified as an automobile for VAT reasons. As a result, if the automobile is used for personal purposes, VAT is not reclaimable at the time of purchase. The VAT may be recovered if the automobile is used entirely for business reasons, although this might be difficult to demonstrate to HMRC.
A similar limitation applies to leased vehicles. If the automobile is used for personal purposes, only half of the VAT on the lease amount may be reclaimed. Ongoing maintenance of leased automobiles is eligible for full VAT recovery, subject to the typical partial exemption and business usage requirements.
Because vans and motorcycles are not considered automobiles, input VAT may be claimed, subject to any modifications for partial exemption and/or non-commercial usage.
Electric vehicles owned by individuals
When an employee drives his or her own electric vehicle for business, the firm may pay the worker the standard tax-free mileage allowance of 45p per mile for the first 10,000 miles travelled in the year, with further business miles reimbursed at 25p per mile.