Tax Benefits of Buying an Electric Vehicle

Electric vehicles are becoming more and more popular by the day. Not only are they vastly more environmentally friendly, but there are also many tax benefits that come with them.

Have you considered buying an electric vehicle? But you aren’t sure if it’s the right route for you or your business? Keep on reading – we are here to help you with this simple guide.

Electric Vehicles Are Subject to Attractive Tax Benefits

In 2019, the government announced that there would be zero tax on Benefit in Kind (BiK) during 2020 and 2021, for company car drivers and fleet operators that have electric vehicles. The BiK tax rate has since increased but only to 2% in the 2022/23 tax year. It will remain at this level until at least 2024/25.

Additionally, EVs entitle you to the following tax reliefs:

• Businesses can claim 100% of the cost against the profits of the first year of purchase from 6 April 2020, no matter the figure
• The First Year Allowance (FYA) scheme was extended for cars and introduced for vans from 1 April 2021
• HGVs and Light Commercial Vehicles (LCVs) currently qualify for super-deduction capital allowance. This means businesses can offset 130% of the asset value against their taxable profits in that first year. For example, if an asset costs £100,000, this equates to a tax saving of £24,700 at the current Corporation Tax rate (19%). Electric cars, however, do not qualify for the super-deduction

Salary sacrificing is also an appealing element to electric vehicles. Until recently, it would not have been particularly tax efficient due to the Optional Remuneration Arrangements rules, introduced in 2017. However, HMRC have since changed their stance. If your vehicle’s CO2 emissions are 75g/km or less, you should always use the earnings charge under the normal BiK rules. Thus, the tax charge on the sacrificed salary amount is removed, which means that in most cases, only a relatively small BiK charge will be due.

Charging Points for Your Workplace or Home – What are the Costs?

The Workplace Charging Scheme (WCS) supports eligible applicants with 75% of the purchase and installation of EV charge-points, up to a maximum of £350 per socket. The grant can be used for the installation of up to 40 charge-point sockets per applicant. This is useful, given that you expect to pay between £1,000 and £2,500 for a commercial EV charging point.

Where the company allows employees to charge their own electric vehicles at the workplace, there is no taxable benefit for the provision of that free electricity.

In addition to the WCS, the government offers an Electric Vehicle Homecharge Scheme (EVHS). This grant provides a 75% contribution to the cost of one charge-point and its installation. This is capped at £350. 

EVs Are Exempt from Clear Air Zone Charges

In 2017, local authorities began to introduce Clean Air Zones to bring down nitrogen dioxide levels with the aim to improve air quality. The idea is that if you drive in a Clean Air Zone and your vehicle exceeds emission standards, you may have to pay a charge. Due to the extremely low emissions that EVs produce, they are exempt from these charges.

VAT and Electric Vehicles

Unfortunately, you cannot recover VAT on purchase. Unless you can demonstrate that the car is used solely for business purposes which, in practice, is very difficult to achieve.

The same VAT recovery rules also apply for leasing purposes with 50% VAT recovery on the leasing charge available. Full VAT recovery, subject to the usual partial exemption and business use tests, is available on the costs of ongoing maintenance of leased cars.

Summary

There we have it, there are many perks and incentives when it comes to electric vehicles! Even more than we have listed above. All in all, electric vehicles are a good investment.

If you would like to speak to a trusted member of our tax team regarding anything highlighted in this blog, do not hesitate to contact us.

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