With all the turbulence in the fuel and energy markets it has again raised the question for employers of whether they should be offering electric company cars to staff. Especially given that (at the time of writing) the business mileage allowance from HMRC for staff using their own vehicle remains stuck at 45p for the first 10,000 business miles, and 25p thereafter.
So what exactly are the rules regarding electric company cars and why are so many businesses looking at these? We have summarised the position below:
- For the tax years 2022/23, 2023/24 and 2024/25 the Benefit In Kind rate is just 2% of the “P11D value” of the car. What this means is that if an electric car had a P11D value of £50,000 and the employee was a 40% taxpayer, then they would pay just £400 a year in additional tax for unlimited private use of the car (unless you place a limit on them). That is a little more than £1 a day, and the car can be fully serviced, taxed and insured by the company. These are all corporation tax deductible expenses. As a comparison, the most gas guzzling polluting cars have a Benefit In Kind rate of 37% of the P11D value! The P11D value is the list price including VAT, options and delivery fees.
- If the car is purchased brand new (which includes ex-demonstrators straight from the dealership) then the cost of vehicle is 100% tax deductible for the business under Enhanced Capital Allowances. The purchase need not necessarily be outright in cash, as it includes hire purchase where there is at least the option to purchase at the end (obviously if you don’t exercise that option the disposal value will be added back to taxable profits).
- If the business leases the electric car instead then the lease payments will be fully tax deductible for the business. Plus, if the use of the vehicle is a mix of business and private use then 50% of the VAT on the lease payments can also be reclaimed, and 100% of the VAT on servicing costs.
- If you provide charging stations at work, then there is also no Benefit In Kind for the employees to charge their vehicles there providing the chargers are made available generally to all employees. You can also recover the VAT on the cost of charging the vehicles, but only for the business mileage so you would need employees to monitor private mileage completed on every charge that happened at work.
Given the above you can see why electric company cars are such a hot topic at the moment, especially where in a difficult recruitment market candidates are increasingly looking at the benefits provided as well as the salary. Veritons is based in Medway, Kent, and in our area we have seen a huge increase in the number of electric cars on the roads, many of which are utilising the above tax advantages. If you would like to discuss your situation and whether electric company cars are right for your business, do not hesitate to get in touch.