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Boris Johnson’s announcement to accelerate the ban on selling new petrol, diesel and hybrid cars has put a spotlight on electric cars. In this article, we look at how the government is using the tax regime to encourage employers to embrace electric.
It is commonly understood that a taxable benefit arises if an employer provides a company car to an employee and the employee is free to use the car for non-business purposes. The benefit is calculated by, broadly, multiplying the manufacturer’s list price for the car when new by a prescribed percentage. Draft legislation was published in 2019 setting out the prescribed percentages from 6 April 2020. The percentage depends on whether the car was first registered on or after 6 April 2020, its CO2 emissions and its electric range. The good news for electric cars and hybrids is that for tax year 2020-21 the prescribed percentage is 0% for both:
These 0% rates will increase to 1% for 2021-22 and 2% for 2022-23 (the 2% rate will apply for all three tax years). These rates are significantly lower than the rates for earlier tax years (for example, for 2019-20 the prescribed rate for fully electric cars was 16%).
We expect the government to confirm the rates set out above in the March 2020 Budget. The government has also promised to publish future prescribed rates in advance so that businesses can plan for changes.
Unlike many benefits that are caught by the optional remuneration rules (rules introduced in 2017 to remove the tax benefits of sacrificing salary for certain non-cash benefits) ultra-low emission cars (that is, cars with CO2 emissions of 75g/km or less) are not caught. It is, therefore, possible to provide fully electric and hybrid cars pursuant to a salary sacrifice arrangement and retain the tax benefits.
The provision of electricity by employers for charging fully electric company cars is not taxable even if the car is used by the employee for non-business purposes (as electricity for fully electric cars is not regarded as fuel for tax purposes). If an employee pays for electricity for business use, this can be reimbursed by the employer at the rate of 4 pence per mile. Further, the employer can pay for an electric-charging point at the employee’s home without that giving rise to a taxable benefit (again provided the car is fully electric).
Businesses can claim 100% capital allowances when purchasing company cars with a CO2 emissions of 50g/km or less. As this allowance is due to expire on 31 March 2021, we anticipate the government will make an announcement about it in the March 2020 Budget.
Businesses can also claim 100% capital allowances for expenditure on electric charging-points provided the expenditure is incurred by 31 March 2023 (and certain other conditions are met).
There has been recent press speculation that the government will announce a reduction to the plug-in car subsidy (which is currently worth £3,500 on certain electric and hybrid cars). We expect an announcement in the March 2020 Budget.
While the focus of this article has been on company cars, there is also a tax exemption for employees charging their personal electric or hybrid cars at the workplace. For discussion about that tax exemption, read our previous article.
20 February 2020
by Mark Braude