Unlocking Tax Advantages: The UK's Electric Company Car Incentives
Recently, HMRC implemented changes in response to a recent court case defeat. These adjustments reflect the United Kingdom's ongoing efforts to promote a greener and more sustainable future. Specifically, the focus has been on encouraging the adoption of electric vehicles within corporate fleets. The government has introduced various tax advantages to incentivize the use of electric company cars. Below, we delve into the key incentives that enhance the financial appeal of choosing electric vehicles.
1. Benefit in Kind (BIK) for Electric Company Cars:
One significant advantage lies in the substantial reduction of Benefit in Kind (BIK) tax for the personal use of company cars which are electric vehicles. Unlike conventional petrol/diesel cars that can incur BIK percentages as high as 37%, zero-emission electric cars enjoy an exceptionally low rate of as little as 2% in 2022/23, maintaining this attractive level until 2024/25. This dramatic decrease in BIK translates to considerable savings for employees, rendering electric company cars an exceptionally appealing and financially advantageous option.
2. Capital Allowances on Electric Cars:
One of the pivotal incentives for companies considering electric vehicles is the 100% First-Year Allowance (FYA) on the expenditure for electric vehicle charging points. Originally set to expire in 2023, this benefit has been extended, allowing companies to claim the allowance before April 1, 2025. Non-corporate taxpayers also have an extended deadline until April 6, 2025. This means that the entire cost of installing charging points can be deducted from taxable profits in the year of purchase, providing a substantial upfront financial advantage.
3. Charging Company Electric Cars at Residential Properties:
A recent shift in policy by HM Revenue & Customs (HMRC) brings positive news for employees charging their electric company cars at home. Previously, charging a company car or van at a residential property was not exempt under section 239. However, a revised position now allows employers to reimburse employees for part of their domestic energy bills used to charge company vehicles, falling within the exemption provided by section 239 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). This means that no separate tax charge arises, provided the reimbursement is exclusively for the charging of company vehicles.
4. VAT Recovery for Charging Electric Vehicles:
HMRC's VAT recovery policy further sweetens the deal for businesses. VAT incurred on the cost of charging electric vehicles at business premises and public charging points can be fully recovered by businesses. Moreover, individuals engaged in business activities can recover VAT on charging costs at both business premises and home, provided they maintain accurate mileage records to identify the proportion of costs attributable to business use.
5. Electric Vehicle Charge Points:
The availability of a 100% FYA on electric vehicle charging points has been extended until March 31, 2025. This allowance, under CAA 2001, Section 45EA, covers expenditures incurred between November 23, 2016, and March 31, 2025 (for corporation tax) or April 5, 2023 (for income tax). This generous allowance applies to plant and machinery installed solely for the purpose of charging electrically powered vehicles, including hybrids.
In conclusion, the UK's tax incentives for electric company cars create a compelling case for businesses to make the switch to greener and more sustainable transportation options. From upfront capital allowances to reduced BIK rates, the government's initiatives are designed to support the environment while providing financial benefits for businesses and their employees. As the nation moves toward a cleaner future, the tax advantages associated with electric company cars contribute to a win-win scenario for both the economy and the environment.