Chargeable benefit: tax advantages of electric and low emission vehicles
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 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.
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. The relief is available until April 2021.
This compares to rates of 6% or 18% per year. (dependent on the level of emissions) that are normally available.
The enhanced 100% allowance is however also available for new low emission cars, i.e. cars with CO2 emissions of under 50g/km. (This rate has applied since 5 April 2018; previously it was 75g/km from 5 April 2015, and 95g/km prior to that.)
Benefits in kind
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 for emissions of 1-50g/km), the appropriate percentage to be used for 2019/20 is 16%. This compares favourably to 37% for the highest band of CO2 emissions.
It is currently proposed that for zero and low emission cars first registered before 6 April 2020, this percentage will reduce to 0% for 2020/21 for zero emission cars. The rate for vehicles with emissions of 1-50 g/km will be in the range 2-14% for 2020/21, dependent on the vehicle’s “zero emission miles”. The percentage increases by 1% for each additional 5g/km of emissions.
The rate is reduced by 2% for vehicles that are first registered on or after 6 April 2020, so that the range for vehicles with emissions of 1-50 g/km will be 0-12% for 2020/21. This percentage increases by 1% for each additional 5g/km of emissions.
For vehicles registered before 6 April 2020, the percentage for 2021/22 will increase to 1% with zero emissions but the rates for vehicles with emissions will not change.
For vehicles registered on or after 6 April 2020, the percentage for 2021/22 will increase by 1%, so that 1% will apply for vehicles with zero emissions and for vehicles with emissions of 1-50g/km the rate will be 1-13% with 1% increases for each additional 5 g/km of emissions.
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.