Thinking of switching to fully electric cars?

Since the Chancellor announced in his March 2020 Budget that the taxable benefits would significantly reduce from 6 April 2020 on fully electric cars from 16% of the list price for 2019/20 to 0% in 2020/21 and along with the increase in fuel prices half of drivers are thinking of making the switch. A Tesla Model X has CO2 emissions of 0g/km with no benefit in kind charge for 2020/21 on a list price of approx. £110,000. Whereas a BMW M5 Competition with a list price of approx. £98,000, CO2 emissions of 241g/km, a benefit in kind rate of 37% would give an annual taxable benefit in kind of £36,260 which at a tax rate of 40% would amount to a tax charge of £14,504 on the employee. Then, there is the added taxable benefit if the company pays for all the employees’ private fuel £24,500 x 37% = £9,065 again at a tax rate of 40% would give a tax charge of £3,626.  Therefore, a total tax charge of £18,130 on the employee for providing the BMW instead of the Tesla with NO tax charge on the employee.  The company also saves on employers Class 1A National Insurance at a rate of 13.8% on the benefit charge by opting for the Tesla instead of the BMW. Although there will be a slight increase in the benefit in kind rates in 2021/22 to 1% and for the following three tax years (2022/23-2024/25) to 2% these rates are still significantly less than a non-fully electric car. You can use the Government website to calculate tax on employees' company cars.

Capital allowances

There is also the advantage of 100% capital allowances available to take on the purchase price of a new and unused cars. However, careful consideration needs to be given when choosing a car, as capital allowances available will differ between fully electric and low emission company cars.

Government grants

The government ‘plug in’ grant available is restricted to 35% of the purchase price, but capped at £3,000. There are conditions which need to be met in order to receive the grant. There are also government grants available for some electric motorbikes, mopeds and vans, but again certain conditions must be met to qualify.  The government grant towards a van is 20% of the purchase price, but capped at £8,000.

Electric charging points and charging costs

Where the electric charging point is installed at the business premises, 100% first year allowances are available on these costs. An employee can charge their own electric car at their workplace with their employer’s permission and not be taxed on this personally as a benefit in kind. An employer can fit a charging point at their employees’ home if they provide them with a fully electric car without a taxable benefit arising. This is not the case is the fully electric car is owned by the employee, as a taxable benefit will arise at 20% on the market value of the charging point. Check if you need to pay tax for charging an employee's electric car.

Electric vans

Electric vans are becoming increasingly popular in particular with directors and employees. This is due to the benefit charge from 6 April 2021 onwards dropping to 0% on fully electric vans and the use of them privately. In the current tax year 2020/21, employees are being taxed on 80% of the normal van benefit charge which would work out to be £2,792.

Electric bicycles

An electric bicycle (e-bike) is an electric assisted bicycle, which also has an electric motor and battery. There are certain specifications which an e-bike must meet to be classed as an electric bike, otherwise if not this would have an impact on an employee’s personal tax position (this can not be an electric motorbike). E-bikes are also becoming increasingly popular due to their low running costs although their initial costs can be fairly costly. An e-bike will qualify for the Cycle-to-Work scheme and an employer can provide the e-bike to an employee with no benefit in kind. There are tax savings for both the employee and employer. The employee will have their monthly repayments for the e-bike deducted from their gross salary, which will mean that they pay less tax and National Insurance. The employer will then save employers National Insurance contributions of about 13% of the cost of the bike.

Electric motorbikes

To date there are no tax advantages for an employee to have private use of an electric motorbike, as they will taxed at 20% on its value plus its running costs.

Hybrid Company cars

Hybrid cars are vehicles which have both a petrol engine and an electric motor. The benefit in kind rates depend on the CO2 emissions of the car and its electric range, which is then applied to its list price. This means that the more miles the hybrid car can travel on battery power then the lower the benefit in kind rate will be. Therefore, it is important that careful consideration is given to this when choosing a vehicle as for example a vehicle with CO2 emissions of 1-50g/km and an electric range of <30 miles for 2020/21 tax year the benefit in kind rate is 12% and increasing by 1% over the next two tax years.  If the employer also paid for the private fuel on behalf of the employee then this would be an additional benefit, which using the rate in the example above would also be 12% of £24,500 and increasing to £24,600 for 2021/22.

Conclusion

Before deciding on purchasing a company vehicle it is imperative that you talk to your tax adviser to consider all the points highlighted above, as there are tax savings to be had by both the employer and employee by doing so. If you have any questions regardign this and would like to talk to someone, please get in touch.