In a world where sustainability and climate change are high on the agenda, it is no surprise to see an increase in the ‘greener’ market when it comes to Electric and Hybrid vehicles. Indeed, is it now the time to be considering whether such vehicles can provide longer term cost savings in the business place? We set out below from a UK tax perspective, some of the new concessions from April 2020 which may now provide some further food for thought when deciding whether such a change is right for your business and staff.
As of April 2020, new rates will apply to certain types of vehicles when determining the taxes to be levied and respective allowances available to companies and individuals.
Use of company car
- HMRC are dramatically lowering the Benefit In Kind (BIK) percentage of fully electric cars to nil for the 2020/21 tax year, and for those hybrid vehicles which have a CO2 emission threshold of between 1 and 50, there are five new tax rates that will apply. These rates are contingent upon the range of the electric only element. As an example, a Renault Zoe with a 19/20 Benefit in Kind of 16% will now be at zero for 20/21.
- For cars first registered prior to 6 April 2020, the percentage figure applicable (subject to the distance the vehicle can travel on a single charge just using its electric motor) ranges between 2% to 14%. For cars registered during the period 6 April 2020 to 5 April 2021, the respective percentage range varies between 0 to 12%.
- The requirement to pay employers class 1A National Insurance can also be reduced as this is linked with the CO2 emissions of the vehicle when compared to its list price.
- Capital Allowances can be claimed on cars that are acquired and used in a company and part of the cost can be deducted from profits before tax each year. For sole traders and partners, there would be an adjustment for private use.
- From April 2020, cars purchased post April 2018 are subject to the following allowances. New and used cars that satisfy the carbon dioxide (CO2) low emissions threshold of 50g/km or less (or the car is electric) qualify for the 100% first year allowance, thus reducing the company profits prior to taxation.
- There is a government grant available to assist with the purchase of new electric vehicles (currently £3,500) and a further government grant available (currently £500) to assist with the installation costs of a home charger.
- In accordance with the most up to date legislation, the fitting of home charging points for fully electric company cars does not create a Benefit in Kind. Furthermore, a taxable benefit does not arise for fully electric company cars if employees are given charge cards to allow individuals access to commercial or local authority charging points.
- HMRC currently hold the view that electricity is not fuel for car fuel benefit purposes. It therefore follows that a company paying for such on behalf of an employee will not now be a benefit, whether this is at work, at home or in a public bay. Although, employees and directors driving fully electric cars can still claim 4 pence per mile for business travel.
Use of personal car
- For employees using their own cars for business travel rather than being provided with a company car, the Approved Mileage Allowance Payments (AMAPs) apply identically as for petrol or diesel cars. In this respect, an employer reimbursing an employee for business mileage is free from tax and National Insurance as long as it does not exceed the AMAP rates. If reimbursement exceeds these rates, the excess is taxable and must be reported to HMRC. If alternatively, the reimbursement falls short of these rates, the employee can claim Mileage Allowance Relief (MAR).
- Unlike the treatment when an employee is provided with a fully electric company car for business purposes, an individual will incur a taxable benefit if:
- an employer installs a vehicle charging point at an employee’s home
- provides a charge card to allow an employee access to commercial or local authority vehicle charging points or pays to lease a battery for the employee’s car.
- HMRC announced that employer’s supplying electricity to charge employees personally owned all-electric or plug-in hybrid cars, including any in which the employee is a passenger, will not generate a taxable benefit. Please note that for this provision to apply the charging facilities must be located at or near the workplace and made available generally to all employees, otherwise a taxable benefit does arise subject to the standard AMAP rates.
The above detail should not be taken as a substitute for specific advice tailored for your requirements and is for information purposes only. The information is subject to change.
Please contact us at firstname.lastname@example.org for more guidance on Company Car Tax, Benefits in Kind and more.