Electric Vehicles- Tips On Tax Benefits And Incentives For You And Your Employees

Electric vehicles (EVs) are becoming a more common sight on our roads, and this will only increase with the sale of new petrol and diesel cars no longer allowed after 2030. The recent increases in fuel prices have also led many drivers to consider buying an EV sooner rather than later. With the move to electric being more popular, businesses are also considering switching and there are ways of doing so in a tax efficient way. Here are some electric vehicle tax benefits, tips and incentives for businesses and their employees.

Benefit in Kind

If you buy an EV that will be used as a company car, you will be taxed as 1%  of the list price of he EV through benefit’s in kind. If the vehicle is not solely for business use and will be used for personal trips as well, then benefit in kind tax must be paid. This rate is 2% until April 2025 and needs to be reporting through a P11D form which is sent to HMRC. The benefit in kind rate for cars with higher emissions is more than 30%, meaning significant savings can be made by choosing an electric vehicle.

Tax exemption

There are certain taxes that EV owners will also be exempt from, including vehicle excise duty, fuel benefit charge, van benefit charge, fuel duty and road tax.

Government Grants

Some companies may be entitled to government grants such as the low-emissions vehicles plug-in grant, making the initial investment significantly less. The maximum grant is around £2,500 for cars and anything up to £16,000 for larger trucks. Learn more about the current grant available here.

Electric Bicycle

There are other electric vehicle options available if you don’t want a car. An electric bicycle is classed as a pedal assisted bike and cannot have a motor-powered top speed of more than 15.5 mph. The electric motor must also be less than 250 watts of power, otherwise it will be classed as a motorbike. It is important to state the difference as electric bicycles will still qualify for the Cycle to Work Scheme and therefore avoids a P11D benefit in kind being applicable.

Travel Incentives

There are also savings to be made if you are using the electric vehicles to drive in urban areas. In London, all electric vehicle owners are exempt from the congestion charge which can add up to hundreds of pounds saved monthly. Other larger cities are following suit with Ultra Low Emission Zones being planned for Birmingham, Manchester, Bristol, Oxford and Bath.

Charging Schemes

To make switching company and personal cars to electric models a viable option, ensure there are sufficient charging points. To address this issue, there are a couple of schemes currently in place. The Electric Vehicle Home charge Scheme provides up to 75% of the cost to install an electric vehicle charging point in a residential building. There is also the Workplace Charging Scheme which will provide vouchers to go towards the cost of buying and installing charging points at a business premises.

Capital Allowances

It is important to note that only new, unused cars qualify for first year capital allowances (100% capital allowances) whereas used electric cars only qualify for general pool capital allowances (18% of value).

Capital allowances are not applicable if the vehicle is a lease car and instead the monthly rental payment is considered an allowance business expense.

Salary Exchange

Employees are able to exchange a certain amount of salary (usually the cost of the lease) in exchange for use of the car. The list price is used to calculate the benefit in kind. This option is beneficial for employees and the employer. The employee receives a brand new electric vehicle whilst also benefitting from a reduction in tax, national insurance contributions (NIC) and student loan repayments. This is because the salary is exchanged before tax is calculated.

Employers can benefit from this as they will pay less in employer NIC contributions, will have lower business mileage claims, lower the overall CO2 output of the company and provide a huge incentive when encouraging people to work for the company as it can help staff retention and increase staff satisfaction.

Can you reclaim VAT on an electric vehicle?

Currently, an electric vehicle is viewed as a car for VAT purposes and if there is any personal use of the car, the VAT is not recoverable on purchase. However, VAT can be reclaimed if the car is solely used for business use. It is important to note however that it is extremely difficult to prove to the HMRC that cars are only used for business.

Not only does owning an electric vehicle mean less money spent on fuel, but there are also fewer moving parts in an electric vehicle, resulting in lower maintenance costs which can lead to a significant saving. The environmental impact is a lot less severe as well, reducing CO2 emissions substantially. Also taking into account the electric vehicle tax benefits and incentives we have discussed in this article; it may make sense for your business to make the investment and switch to electric now. If you are making this change and want to discuss the tax benefits available in more detail, then please get in touch with a member of the Wright Vigar team.