The use of Electric Vehicles in company fleets is rising - Know the benefits
Company car tax is intended to encourage employers and company car drivers to choose cars with lower levels of CO2 emissions, with a range of incentive offered to both employee and the employers. This has historically lead to a big increase in the number of diesel cars on UK roads, around half of new cars registered each year are now are now diesel, compared with around 20% only 10-15 years ago. However, the landscape has changed with the recent ‘Decline of Diesel’, with the extra 3% to the BIK percentage of diesel vehicles certainly being a contributing factor. These influences have helped to encourage the adoption of hybrid and electric vehicles amongst corporate drivers.
To promote ultra-low emission vehicles (ULEVs), they benefit from reduced rates of company car tax rates. Vehicles with emissions up to 50g/km attract a rate of 7% in the 2016-2017 tax year, rising to 9% from April 2017.
Benefit in Kind Tax Explained
Benefit in Kind tax can be calculated using the formula below:
P11d value multiplied by the employee tax rate and BIK percentage
Hybrid (PHEV) and Electric vehicles are subject to BIK tax, with Hybrid cars currently conforming to the same tax rules as petrol cars. They emit less and therefore sit in lower bands, so drivers pay less benefit in kind tax for them.
The P11d value is calculated based on a payable percentage on the basic list price of the car plus VAT, delivery and any factory fitted options over £100.
Current Personal Tax rates are:
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £11,500||0%|
|Basic rate||£11,501 to £45,000||20%|
|Higher rate||£45,001 to £150,000||40%|
|Additional rate||over £150,000||45%|
BIK percentage is calculated from the CO2 emissions of the vehicle.
The table below outlines the current BIK percentages:
Add a further three percent to the BIK percentage if you’re running a diesel car.
|% of P11D||2014/15||2015/16||2016/17||2017/18||2018/19|
|Price||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)||CO2 (g/km)|
PHEV and Electric Grants
There are a number of government incentives in place for electric vehicles aimed at reducing the overall cost. Introduced in 2011, the plug-in car grant subsidises the purchase of qualifying battery electric and plug-in hybrid cars worth 25% of the capital cost up to a maximum of £5,000.
Both private car buyers and fleets are eligible to receive the plug-in grant, which is administered by the Office for Low Emission Vehicles (OLEV). No application forms are required as the dealership completes all the necessary paperwork on the buyer’s behalf and the grant is automatically deducted from the vehicle price at the point of purchase.
Other incentives that can significantly reduce the costs of running an electric vehicle are;
- Zero-rated car tax (Vehicle Excise Duty)
- Zero-rated fuel tax (electricity only attracts 5% VAT)
- Greener Vehicle Discount on the London Congestion Charge.
Electric cars and vans are also exempt from Vehicle Excise Duty (‘car tax’). Owners of electric vehicles will therefore save around £130 per year compared to an average conventional petrol or diesel car.
Electric Vehicle Reimbursement Rules
Fleet reimbursement guidelines provided by the HMRC regarding electric and hybrid cars for business, and private miles has historically been confusing and contradictory.
Recent guidelines have moved to set the matter straight – Electric cars don’t have any AFR (advisory fuel rate) figues, meaning that you should be using the actual costs of charging vehicles. This is, however, not as simple as it seems as there are different rules for two home charging scenarios.
If the employee charges their car at home using their own electricity, and their employer reimburses for business and private mileage, then the reimbursement would be taxed as earnings, albeit with a proportionate deduction for the cost of business miles travelled (there is no taxable benefit if the car is used only for business).
If the employee charges their car at home using electricity provided by their employer (for example, the employer installs a vehicle charging point and pays for electricity used), there is no additional benefit, so no tax is due.
In both cases, the employer is paying for the full cost of electricity used, yet only one results in a taxable benefit.
There is a range of taxable and non-taxable employer benefits regarding electric and PHEV vehicles, The table below outlines the benefits:
|Provision||Company car made available for private use||Employee’s car used for business|
|Employer allows cars to be charged from a vehicle charging point at work.||No taxable benefit – electricity does not sit within the meaning of fuel so the Fuel Benefit Charge does not apply. And there is no further benefit charge as s239(4) ITEPA 2003 specifically excludes a benefit connected with a taxable car.||Taxable benefit based on cost to the employer.|
|Employer pays for a vehicle charging point to be installed at the employee’s home.||No taxable benefit because of S202(1) ITEPA 2003 (and S239 (4)).||Taxable benefit based on cost to the employer.|
|Employer pays for charge card of £100 per year to allow individuals unlimited access to local authority vehicle charging point.||No taxable benefit because of S202(1) ITEPA 2003 (and S239 (4)).||Taxable benefit based on cost to the employer.|
|Manufacturer leases battery separately to the car.||Cost of battery forms part of the list price – car will not go without it so it must be integral (like wheels).||Not taxable.|
|List price includes cost of battery||Use list price|
|List price does not include cost of battery||Use notional list price|
|Employer pays to lease a battery for a privately owned car||Taxable benefit based on cost to employer|
|Mileage allowances||None – advisory fuel rates are based on the average price of fuel per mile – electricity is not a fuel||Authorised Mileage Allowance Payments (AMAPs), and, if the employer pays less than the published rates, may claim tax relief under Mileage Allowance Relief (MAR).|