Jack said: “When providing a company car to an employee, a taxable benefit is assessed on the employee based on the vehicle’s list price and its CO2 emissions in grams per kilometre (g/km). This benefit is subject to income tax at the employee’s marginal rate, and the employer will also be assessed for Class 1A National Insurance contributions at 13.8% on the value of the benefit. Both parties therefore have an interest in the assessed benefit-in-kind being as low as possible.”
As part of its push to encourage the switch to electric, the Government intends to provide more than £532 million for consumer incentives for ultra-low emission vehicles. Around £403m of this is earmarked for the extension of the plug-in car grant (PICG) to 2022/23. From 12 March 2020, those making the switch to electric cars were eligible to apply for a grant of up to £3,000 towards the purchase of a new electric car. Currently, the PICG grant stands at £2,500 and cars costing more than £35,000 are excluded. Money has also been set aside for grants to encourage the switch to zero-emission vans, taxis and motorcycles in the future.
Jack added: “For five years from 2010, providing a zero-emission electric company car was tax-free to the employee, but this failed to generate significant interest. This was primarily due to the lack of car choice and supporting infrastructure. Electric cars are now becoming more mainstream, and they are a more viable option for an employer looking to provide an employee with a tax-efficient company car. The public has also become a lot more environmentally conscious, with individuals making more careful choices to minimise their carbon footprint. From a tax perspective, there is a clear financial incentive to both employer and employee to opt for an electric car.”
The Government has also put in place a voucher-based workplace charging scheme, providing eligible employers with support towards upfront costs of buying and installing charge points at the workplace. For employees using a company car for work, the employer can pay mileage to reimburse the employee for any charging costs.
There are still a number of potential disadvantages of using electric cars as company vehicles. Notably, limited driving range, the lack of charging points, and the charging time needed to be factored into time schedules. Electric cars are also still significantly more expensive than their fuel-based counterparts. Changing a company vehicle scheme is a big decision and it is important to talk through the implications with your accountant before you press ahead.
Please note these rates are based on the current rules in the 2021/22 tax year and are subject to change.
Bevan Buckland LLP is the largest independent accountancy practice in Wales providing practical support and strategic accounting and tax advice for small to medium-sized businesses. Headquartered in Swansea, the firm has offices in Cowbridge, Carmarthen, Pembroke, Haverfordwest and St David’s.
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