Current tax aspects of electric vehicles and charging facilities

Published by

Kirsty Muir

The change to electric vehicles (EVs) is well underway and making the switch now can provide clear income tax and NIC savings for companies providing EVs and related facilities to employees.

Sue Daye, Tax Partner in the Cheltenham office at Crowe U.K. LLP looks at tax implications for electric vehicles.

From mid-2022, new workplaces, homes, supermarkets and buildings undergoing major renovations will be required by law to install EV charging points – up to 145,000 new charging points are expected annually.

The ban on the sale of new petrol and diesel cars and vans from 2030, and the increasing number of EVs coming on to the market with ever-improving refinement, range and performance, is driving the need for businesses to take a considered and planned approach to its electric vehicle provision and charging.

The government is encouraging the purchase of EVs with attractive Corporation Tax relief and low Benefits in Kind (BiK).

The detail is complicated, but, for example, the BiK of a company car is calculated based on the car’s list price, registration date, fuel type, C02 emissions and the electric range of hybrid cars.

During the 2020/21 tax year the company car benefit rate was 0% for fully electric cars and for cars registered on or after 6 April 2020 with CO2 emissions of 50g/km or less with an electric range figure of 130 miles or more. These rates will increase by 1% each year until the 2022/23 tax year, when they will be frozen until at least 2024/25.

Fully electric cars (and hybrid cars with a 130 miles plus electric range) have a benefit rate of 1% in 2021/22 and 2% from 2022/23 to 2024/25.

The taxable benefit on a Volkswagen ID.3 could be as low as £296 for 2021/22, costing a higher rate taxpayer just £118 in income tax.

In comparison, a new petrol Volkswagen Golf has a taxable benefit of £6,680, costing a higher rate taxpayer £2,672. This is a huge saving of income tax and Class 1A NICs saving for the employee and employer, respectively.

The benefit of EVs also extends to the treatment of vehicle charging. Where an employer has charging facilities at or near their premises, the cost of employees charging their vehicle is exempt from UK income tax and NICs – regardless of whether the EV is provided by an employer, or is the employee’s personal vehicle (whether for business or private use).

VAT rules are similar for all vehicles, electric or otherwise. There may be more VAT developments to come for the electric car market in the future, but current rules simply require businesses to make some modern considerations to applying the existing VAT recovery rules.

For example, when filling up a petrol car, an employee is provided with a VAT receipt, which shows the exact values and VAT rate applied to the supply.

However, with an electric car, all that is required to charge the car is an eligible power socket. Therefore, electric car-driving employees may be able to charge their car at home, at a commercial charging station, or even at work.

A sole proprietor can recover their business-use input VAT incurred on charging their car anywhere. However, the rules are not so generous for employees and organisations should beware that if an employee charges their car at home the employer cannot recover input VAT. Sole-proprietors recovering VAT need to ensure that they recover the right amount of VAT given they may incur VAT at 5% or 20% on their car charging.

So, as organisations adopt more electric vehicles they are encouraged to review their current procedures around the recovery of VAT to ensure they remain compliant with the VAT rules.