Electric Vehicles – a tax efficient employee benefit

Following on from our previous article which considered the tax implications of purchasing a car for use in your business, we now discuss why it is the optimum time to purchase an Electric Vehicle (EV).

According to Auto Express, some of the best EV’s to buy in 2019 include brands such as Tesla, Jaguar, Mercedes and BMW. Ordinarily, these high value cars would not be particularly tax efficient due to the higher CO2 emissions associated with petrol and diesel cars of that calibre. However, with growing improvements in technology and charging infrastructure, EV’s are becoming quite an attractive and viable alternative to their conventionally fuelled equivalents.

From 6 April 2020, Government policy has been updated to better encourage the provision of EV’s. The next tax year, 2020/21, is likely to be the optimal time for buying an EV, as 100% First Year Allowances (FYA) can be claimed by the purchaser and corporate employers will continue to deduct the lease costs with no restriction.  There will also be a taxable benefit for employees who drive EV’s as the employee’s benefit charge will be reduced to zero, increasing to 1% of the cars list price from 6 April 2021, with a further 1% increase in the following tax year. This increase to 2% in 2022/23 is still substantially lower than the current rate of 16%.

A business may also wish to install charging points on the premises as costs incurred before 5 April 2023 will also qualify for FYA (31 March 2023 for corporates). Government policy beyond 2023 remains uncertain.

Due to the difficulties in accurately determining the relevant costs of charging via the employees’ domestic supply, there is no taxable benefit where an employer covers charging costs, however a flat rate tax-free payment can be paid by the employer based on the number of business miles driven.

The upcoming changes enable employers to offer an attractive and extremely tax efficient benefit to their employees. Therefore, businesses who have considered going electric may wish to do so in the very near future to benefit from the substantial tax advantages over the coming years. The UK may experience a shortage of EV stock due to increased demand post 6 April 2020, so it could be worth getting orders in early to secure your preferred model.

Our EQ Taxperts have advised many clients on tax efficient employee benefit arrangements and have the expertise to advise on the best solution for your business.

For more information or advice on employment benefits, please contact our Employer Solutions Taxperts.

Alternatively, if you would like to discuss integrating energy saving technologies into your business, please get in touch with our EQ Technology Team.