As individuals and businesses become increasingly aware of the conversations being had about sustainability and the environment, many are considering how they can make greener choices.
One subject that we recurrently find ourselves engaging with employers and directors about, given the Government’s commitment to ban all sales of petrol and diesel vehicles by 2030, is switching to electric vehicles (EVs) and the tax implications of doing so.
Incorporating EVs into your business
Employers often opt to offer EVs to their workforce via a salary sacrifice arrangement. In principle, the employee pays for a particular benefit (in this case, an EV) by sacrificing a slice of their salary. Provided in this way, EVs are considered a Benefit-in-Kind (BiK) but do attract a preferential rate of tax.
Unsurprisingly, lower CO2 emissions result in more significant tax savings. The tax charge for solely electric cars is currently 1% for the 2021/22 tax year and will go up to 2% for the 2022/23 tax year. Compared to the 14% that vehicles emitting 1-50 CO2 (g/km), with an electric mileage range of <30, will pay in 2022/23, you can appreciate that 2% piques interest.
When considering EVs, it may also be worth getting to grips with the optional remuneration rules, and how these may or may not impact you.
Other tax implications and practical considerations
If you are thinking about replacing your own petrol or diesel vehicle, or those within your business, with an EV/s, it’s worth bearing in mind the following points:
- You cannot claim VAT back on vehicles purchased by your company, unless 100% business usage can be proven. However, 50% of the VAT on leasing payments can be claimed back, even in cases where the vehicle is not used solely for business purposes.
- The electricity consumed to charge an EV, if provided to an employee at no cost via a point at or near the workplace, is not considered a taxable benefit.
- New and unused pure zero-emission cars and vans qualify for 100% first year allowance (FYA), in respect of capital allowances, with no upper constraint on value. Furthermore, the temporary ‘super-deduction’ affords for a 130% FYA on qualifying electric charging points, used within the business for EVs, until March 2023.
- As of December 2021, the Government’s Plug-in Car Grant, which will be available until 2023 and should be applied for automatically by the car dealership in question, provides a £1,500 contribution towards pure EVs priced under £32,000.
Obviously, all of the tax advantages do not take account of the fact that it’s an electric vehicle and may have some limitations; for example, the vehicles range, time taken to charge, and the availability and installation of charging points are all important considerations. From discussions that we have had, we also know that cost and availability of vehicles are two significant drawbacks, presently.
Planning a purchase?
We understand the extent to which tax is an integral consideration when it comes to having control of your business and being able to plan proactively and effectively.
We can help you to dissect the implications of purchasing EVs, whether for yourself as a director or for your wider workforce, and of operating salary sacrifice schemes in relation to cars or other benefits.
To discuss your plans for the year ahead, or for more information about the tax and accounting services we offer, contact George Hay Chartered Accountants on 01462 708810 or visit www.georgehay.co.uk
This article is for general information only. No responsibility for loss occasioned to any person acting or refraining from actions as a result of its contents can be accepted. The relevant professional advice should be sought in relation to your own circumstances.
About the Author
Richard Dilley, FCA FCCA, is a Partner at George Hay Chartered Accountants. Richard joined George Hay in 1986; he qualified with the firm, was appointed as a Partner in 2001 and took on the role of Managing Partner in 2017. Richard specialises in advising small to medium sized businesses (SMEs).