Over the past few years, there’s been an increase in people buying electric vehicles, or EVs as they’re also known. But do these types of vehicles still offer tax relief for companies? Have you been considering changing your fleet to electric vehicles? Let’s look at the latest updates to see whether EVs offer any viable tax savings for businesses.
Benefit in kind for EVs
For business owners, there are benefits in Kind tax relief on both the purchase and vehicle duty on electric vehicles (EVs). The cost of buying an EV can be deducted against your taxable profits for First Year Allowances. An EV car can be paid for by a company and the user of the car then pays a percentage of the list price on the vehicle to use it. So, how do these current tax savings work?
Back in 2017, the Expensive Car Supplement for electric vehicles was introduced. Over the past few years, this has enabled company car schemes to achieve high tax savings. Cars with CO2 emissions between 1 to 50g/km could pay the lowest rate of Vehicle Excise Duty. During 2020 – 2021, the government took this a stage further by announcing a zero-tax rate for the financial year.
Depending on the type of fuel used by the vehicle and the amount of CO2 emissions, this type of tax relief has changed and the zero rate has ended. Last April, Vehicle Excise Duty increased to 2% for cars producing less than 50g/km (CO2) and with less than a 130-mile range. The Expensive Car Supplement exemption will end on 1 April 2025 and, along with zero emission vans, vehicles will move to the standard annual tax rates.
New zero emission cars registered on or after 1 April 2025 will be liable to pay the expensive car supplement where eligible (currently those with a list price of or exceeding £40,000 are liable).
Salary sacrifice schemes
Your company might offer salary sacrifice schemes, which allow you to exchange part of your pre-tax wages for a new car. The cost of the car is deducted each month from your salary, and this can save you income tax and NI contributions. Usually, the car is leased through a third-party lease company, who’s partnered with your employer.
Getting an electric vehicle through a salary sacrifice scheme can be a worthwhile way to save tax and reduce your carbon emissions. You would be responsible for maintaining the car until you either leave your employment or the lease term ends, when you have to give the car back. At the end of the lease term, the lease company will expect the car to be in a certain condition. For company owners, this benefit could improve employee engagement.
Energy and electric vehicles
Last year the government published ‘Taking charge: the electric vehicle infrastructure strategy’. This document outlined the vision, action plan and measures to be implemented for the decarbonisation of UK roads through the uptake of electric vehicles (EVs). It also detailed various plans for infrastructure improvements that will support the rise in people driving EVs. The current target is to install 300,000 public charging points by 2030.
The government has a task force looking at ways to work with businesses to improve EV infrastructure. One measure includes tax relief for companies allowing employees to charge their EVs onsite. Although many large companies have begun altering their car parks and installing more EV charging points, the cost of energy is rising.
As the company is responsible for paying electricity bills, some argue that the present escalating energy prices could outweigh tax benefits. The Energy Bill Relief Scheme is currently subsidising company energy bills, but this measure is set to end in April. At this stage, we do not know if there will be continued relief for business energy bills. In the meantime, companies can still pay a reduced level of tax on electric vehicles.
To conclude, electric vehicles (EVs) will still offer a level of tax savings for businesses until 2025. The cost-of-living crisis, rising electricity costs and proposed government tax changes might make EVs slightly less tax efficient, but it’s still worth considering. Before you buy an electric vehicle or EV fleet, do some financial planning so you understand your tax savings.
For more pros and cons, read our previous blog, Buying an electric car or EV.