A record number of electric cars were sold in the UK in 2021. Good news for the planet! But did you know that they also offer a range tax benefits to employers and employees?
Reduced benefit in kind
One major advantage of employer-provided electric cars, either bought or leased, is that they attract a reduced benefit in kind (BIK) compared to petrol or diesel cars. This is a win for both employers and employees.
The lower-value taxable BIK means employees save on income tax, while employers don't shell out as much on Class 1A NICs.
Salary sacrifice savings
There may also be savings to be made on electric cars through salary sacrifice schemes. To work out the value of a non-cash benefit for tax purposes under such a scheme, HMRC says you should always use the higher of the amount of salary given up or the earnings charge under the normal BIK rules.
However, for cars with CO2 emissions of no more than 75g/km, you should always use the earnings charge, even if it's less than the salary given up. This means employees could save on income tax and NICs, and employers on NICs.
Enhanced capital allowances
Where an employer buys a new and unused electric car, or a car with zero CO2 emissions, for an employee, including the company director in owner-managed businesses, the employer can claim "enhanced capital allowances".
This means they can deduct the full cost of the car from their profits before tax in year one.
Claim charging costs
Sticking with capital allowances, employers can claim a 100% first year allowance for the cost of installing electric vehicle charging infrastructure for their employees. They can also claim back the VAT if they install the charging equipment at their business premises.
What's more, employees who charge their own electric vehicle (it doesn't even have to have been provided by their employer) at their workplace do not have to pay BIK on the value of the electricity used - even if they are charging their car for private mileage.
More BIK benefits
An employer who has provided an employee with an electric car may also cover the cost of installing a chargepoint at the employee's home, in which case a BIK will not arise. However, unless the electricity used to charge the car at the employee's home is provided by the employer (which is unlikely to be the case), the employee will be liable to BIK on the electricity.
Time to take advantage
So those are the key tax advantages of employer-provided electric cars. With the government working towards net-zero, which involves planning to end the sale of new petrol and diesel cars by 2030, nobody knows how long these tax benefits on electric cars will be around. They are currently set to run to 2025. Make sure you advise your organisation or clients to take advantage of them before then.