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August 3rd 2018

Electric vehicles - what are the tax incentives?

As the government launches its ‘Road to Zero’ strategy this month, there’s a big push to get us all buying electric vehicles so that the UK reaches its target of at least 50% of all new vehicle sales to be in the ultra-low emissions category by 2030, alongside up to 40% of new vans. This is further to the government’s Air Quality plan, which already commits to ending the sale of new conventional petrol and diesel cars and vans by 2040.

There have already been over 28,000 ‘green’ cars registered so far this year in the UK, which includes almost 22,000 hybrids, representing a 40% increase on last year’s registrations, however a recent AA/Populus survey revealed that whilst half of young people would like to own an electric car, only a quarter of their parents share that same view. So what’s putting them off purchasing an electric vehicle (EV)?

Well, the survey found that:

  • 85% said that there aren’t enough public charging points for EVs
  • 76% said EVs can’t go far enough on a single charge
  • 76% think EVs are too expensive
  • 67% think EVs take too long to charge
  • 67% think there isn’t enough choice of models

Now, the AA has allied these fears to some extent, by saying that more and more charging points are appearing (including rapid chargers), that range is improving all the time (with several models now able to go over 250 miles on a single charge), and that the cost is coming down (grants are also available). We are also starting to see more manufacturers releasing electric models.

That’s all very well, but “Are there any tax incentives available if I buy an electric vehicle for use in my business?”

In short, yes. Let’s have a look at a few areas of taxation where your small business could benefit.

Capital Allowances

Brand new cars with CO2 emissions less than 50g/km qualify for 100% first year allowances until April 2021 at least. This means that you can deduct the full amount from your trade profits (remember, if you are a sole trader or partnership, you must reduce your claim for your private use). This is in contrast to cars with emissions of 51-110g/km or above 110g/km, on which you can only claim ‘writing down allowances’ of 18% and 8% per year, respectively. For example, a brand new electric vehicle costing £20,000 could save £3,800 of corporation tax in the year of purchase, whereas a petrol or diesel car of the same cost but emissions of 120g/km, would only save £304 of corporation tax in its first year.

Vans also qualify for 100% first year allowances (if the government’s Plug-in Van Grant has not been claimed), however 100% Annual Investment Allowance is already available for the purchase of vans, so in the majority of cases, this won’t make any difference, and the full amount would be deducted from your trade profit.

The 100% first year allowances also extend to electric vehicle chargepoints installed before 2019.

Vans and cars provided to employees and directors

If your business purchases a vehicle for the use of an employee or director, they will need to assess if a ‘benefit-in-kind’ (BIK) arises – broadly, if the vehicle is available for private use, a BIK is likely to exist.

Vans – for BIK purposes, these are vehicles of a construction primarily suited for the conveyance of goods or burden of any description, but not passengers (back passenger seats will see a van classed as a car – apart from double-cab pick-ups, which will be classed as vans provided the payload exceeds 1,000kgs). The BIK value of a van for the 2018/19 tax year is £3,350 (plus £633 if the company pays for all fuel), on which Class 1A National Insurance of 13.8% is payable by the company. Income tax at the taxpayer’s marginal rate will also be due from the employee, usually by way of a tax code adjustment (or a Tax Return if they already file one).

In the current tax year, zero-emissions vans have a BIK value of 40% of the usual van benefit charge (i.e. £1,340) – in other words, a 60% saving on both National Insurance and Income Tax. This proportion is gradually being increased, with the aim that by 2022/23, there will be no distinction between the van benefit values – effectively, the emissions will be ignored for BIK purposes.

Cars – the benefit value for cars is dependent on the emissions, with cars with less than 51g/km currently attracting a BIK rate of 13% of the list price when new (this applies even if the vehicle is older and worth much less than the list price, and even if the business purchased it second-hand). The rate jumps to 16% for emissions from 51-75g/km, then to 19% at 76-94g/km, thereafter increasing by 1% for every additional 5g/km. Once the emissions reach 180g/km, the rate is fixed at 37%. Note that diesel cars not meeting the RDE2 test* (unless a diesel-hybrid) attract a 4% surcharge on these rates, but the maximum charge is still 37%.

*Currently, there are no RDE2-compliant models on the UK market, but new models are expected to be released soon.

The government plans to introduce a new measure for the car BIK from the 2020/21 tax year, based on the car’s range in miles – for example, a car with emissions of no more than 50g/km, and a range of at least 130 miles, will attract a BIK rate of only 2% of its list price – a huge reduction on the current 13%, and an even bigger saving when compared to its petrol or diesel equivalent.

So, for now, the savings on electric cars will depend on the emissions of the model that would have been provided instead. What is perhaps more stark is the savings on the fuel benefit. If you provide a company car to an employee, and also pay for all of the car’s fuel, in addition to a benefit based on the car’s list price and emissions, the car fuel benefit charge is calculated at £23,400 multiplied by the same percentage as the car benefit, which ranges from 13% to 37% (i.e. a value of between £3,042-£8,658). This is regardless of how much fuel is actually being used privately, so it can be particularly crippling to those with low mileage. There is no such fuel benefit for electric cars – even if the business electricity is used to charge the car or van!

Vehicle Excise Duty

Pure electric cars are also exempt from paying Vehicle Excise Duty (‘car tax’).

Electric Vehicle Grants

Read more about plug-in grants here.

If you are thinking about your next vehicle purchase, it is definitely worth considering a low-emissions option. If you are stuck for choice, contact us today, and we would be happy to help you compare the tax savings on different models.

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