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Chargeable benefit: tax advantages of electric and low emission vehicles

/ 18 November 2019

Chris Smith

To encourage the use of electric cars and other ultra-low emission vehicles, the UK Government offers a range of incentives. These include plug-in grants against the initial cost of the vehicle and reduced first-year rates of vehicle excise duty.

If you’re considering an electric or low emission vehicle for business use, the tax-related advantages are also worth knowing about. They cover capital allowances, car benefits in kind and fuel benefits in kind.

Capital allowances

Enhanced capital allowances of 100% of the cost of a new (i.e. unused and not second-hand) electric car are available to businesses in the year that a vehicle is purchased. Not to be confused with the Annual Investment Allowance, which is not available for any car, the relief which had only been available until April 2021 has now been extended to 31 March 2025.

The enhanced allowance is only available for new cars with CO2 emissions of 0 g/km after 1 April 2021. (This rate was previously 50g/km from 1 April 2018, 75g/km, from 5 April 2015, and 95g/km prior to that.)

This compares to rates of 6% or 18% per year (dependent on the level of emissions) that are normally available, with second hand electric cars attracting the 18% rate of writing down allowances via the main capital allowances pool.

Benefits in kind

Car benefit

For an employee provided with private use of a company car, the chargeable benefit that’s taxable is based on:

  • A vehicle’s list price, multiplied by
  • A percentage which is determined by the level of a car’s CO2 emissions and its fuel type.

For zero emission cars and low emission (less than 100 g/km) cars first registered after 5 April 2020, the percentage for zero emission cars is 0% for 2020/21 and 1% for 2021/22.

The rate for hybrid vehicles first registered after 5 April 2020 with emissions in the range 1-50 g/km is in the range 0-12% for 2020/21 and 1-13% for 2021/22, dependent on the vehicle’s “zero emission miles” i.e. its electric range: the maximum distance the car can be driven in electric mode without recharging the battery. The percentage then increases by 1% for each additional 5 g/km of emissions over 50g/km regardless of the electric range of such a hybrid vehicle.

The rates are increased for vehicles that are first registered before 6 April 2020 by 2% for 2020/21 and by 1% for 2021/22, so that the range for vehicles with emissions of 1-50 g/km will be 2-14% for 2020/21. This percentage increases by 1% for each additional 5 g/km of emissions, this still compares favourably to 37% for the highest band of CO2 emissions.

Fuel benefit

As electricity is not a road fuel, no car fuel benefit arises on charging provided by an employer to an employee at the workplace. (However, the provision by an employer of a charging point for an employee at their home would give rise to a benefit equivalent to the cost to them of doing so.)

For more information about tax reliefs that may affect your business, please get in touch with your usual BKL contact or use our enquiry form.

Updated: March 2021

Chris Smith

Director of Personal Tax Compliance

T +44 (0)20 8922 9160
E chris.smith@bkl.co.uk

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