Q&A: electric company cars

In our regular Q&A series from Croner Taxwise, payroll adviser, Samantha O'Sullivan explores the tax benefits of providing low emission/electric vehicles as company cars

Q. What are the benefit in kind rules for 2020/2021 for low emission cars and fully electric cars provided to employees as company cars?

A. Employees are required to pay income tax on any benefits that they receive from their employer. The benefit in kind for company cars is calculated based on the cars C02 emissions and the list price of the vehicle.

From 6 April 2020 the benefit in kind for fully electric cars is being reduced to 0% for the tax year 2020/2021. The Government’s summary of responses document published in July 2019 confirmed that:

All zero emission company cars will attract a reduced appropriate percentage of:

  • 0% in 2020/21;
  • 1% in 2021/22; and
  • before returning to the planned 2% rate in 2022/23

 

These reduced rates are applicable for cars registered before and after 6 April 2020. The July 2019 review can be found at company car taxable benefits.

The advance of these reduced rates will reduce the employee’s income tax liability, and save employers on their Class 1A National Insurance liability.

Fully electric cars will not have any fuel scale rate charges applied to them, as electricity is not a fuel. For reimbursement of mileage, you would use the approved electricity rate of 4p per mile. This rate is published at Advisory Fuel Rates.

There are also tax advantages if you provide your employee with charging facilities at your workplace, and even for installation of a vehicle charging point to be installed at the employee’s home. 

For further guidance on the tax treatment of charging and mileage payments due to an employee using a fully electric vehicle, please see Employment Income Manual (EIM23900)

 

Ultra low emission vehicles

If a fully electric car is not available, there are also reduced rates for ultra-low emissions car with CO2 emissions of less than 75g/km.

For cars registered from 6 April 2020 with a range of more than 130 electric range miles, they will also benefit from the reduced appropriate percentage of 0% for the 2020/2021 tax year.

For cars registered before 6 April 2020 with a range of more than 130 electric range miles, they will benefit from the reduced appropriate percentage of 2% for the 2020/2021 tax year.

Employees who are in receipt of an ultra-low emission vehicle as a company car, they are able to have a salary sacrifice arrangement to run alongside the provision of the vehicle.

The optional remuneration arrangement rules do not apply to cars with CO2 emissions of 75 grams or less per kilometre.

Cars with CO2 emissions of 75 grams or less per kilometre continue to be taxed on the cash equivalent of the benefit without having to make a comparison with the salary foregone.

For further guidance on the tax treatment of charging and mileage payments due to an employee using a fully electric vehicle, please see Employment Income Manual (EIM44060)

 

About the author

Samantha O'Sullivan, payroll adviser at Croner Taxwise, tel: 0844 892 2470

This article first appeared on Croner Taxwise

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