TAX CORNER: Tax and electric vehicles – what you need to know
QUESTION : I operate a small owner managed company and my lease is up for renewal on my diesel company car. I am considering having the company replace my car with an electric car but I would like to understand the tax benefits?
ANSWER: The next few years will see a transport revolution as the UK Government seeks to deliver on its commitment to phase out the sale of new petrol and diesel cars from 2035.
I set out below some of the key tax incentives for a company looking to purchase an electric car for use by a director or employee, highlighting some of the changes due to come into effect later this year.
An electric vehicle is one that runs on electricity at least some of the time.
The main types are:
:: The battery electric vehicle (BEV). In this case, the vehicle’s battery is its only power source and it is recharged by plugging it into the grid via a charge point. A BEV has zero direct (tailpipe) CO2 emissions.
:: The plug-in hybrid electric vehicle (PHEV). This is a car that switches between running on electricity and fossil fuels.
As with the BEV, the battery is recharged by plugging it into the grid.
:: A hybrid electric vehicle (HEV) has a battery that can only be recharged while driving. Typically, HEVs can drive in battery mode for only a few miles.
In general terms, tax incentives are restricted to BEVs and to a lesser extent, PHEVs.
For expenditure incurred before April 1 2021, a 100 per cent First Year Allowance (FYA) is available for a new vehicle which is ‘electrically-propelled’ or which has low C02 emissions.
An ‘electrically-propelled’ vehicle is propelled solely by electric power (ie it is a BEV). A vehicle has low CO2 emissions where the emissions do not exceed 50g/km (typically, a PHEV).
Vehicles that do not qualify for a FYA are allocated to a pool by reference to an emissions threshold.
The emissions threshold is currently 110g/km and is expected to reduce to 50g/km for expenditure incurred on or after April 1 2021. Expenditure on a vehicle within the emissions threshold is allocated to the main rate pool (18 per cent writing down allowance (WDA) each year) and expenditure on a vehicle exceeding the threshold is allocated to the special rate pool (6 per cent WDA).
A 100 per cent FYA is available for expenditure on new plant and machinery installed for the purposes of charging an electric vehicle. Zero- and low-emission company vehicles (not more than 50g/km) benefit from a significantly lower benefit in kind (BIK) percentage. For low-emission ones, the percentage is determined by the electric range.
For 2020-21 the BIK percentage for a zero-emission car is zero per cent and for a low-emission car it is between zero per cent and 12 per cent. All percentages will increase by one percentage point for 2021-22 and (as announced at Budget 2020) again for 2022-23 so that, for example, the percentage for a zero-emission vehicle will increase from zero in 2020-21 to one per cent in 2021-22 and to 2 per cent in 2022-23.
The provision of electric charging facilities at or near the workplace, and made available to employees generally, does not constitute a taxable benefit in kind for the employee. Further, the employer may pay for the installation of an electric charging point at the employee’s home without a benefit in kind arising. Any electricity provided or reimbursed by the employer in charging a company vehicle is not regarded as ‘fuel’ and so the fuel benefit charge does not apply.
There is a grant of up to £2,500 towards the cost of buying a new low-emission vehicle. The grant is given to the dealership/manufacturer and so is reflected in the price of the vehicle. To be eligible, the vehicle must cost less than £35,000. This is the recommended retail price (RRP), and includes VAT and delivery fees.
The Workplace Charging Scheme provides a grant of up to £350 per socket (up to 40 sockets) towards the cost of purchasing and installing charge points. A similar scheme applies with regard to domestic properties – the Electric Vehicle Homecharge Scheme).
An electric vehicle will still be viewed as a car for VAT purposes. Therefore, if there is any private use of the vehicle, VAT is not recoverable on purchase. The VAT can be reclaimed if the vehicle is used 100 per cent for business purposes but this can be difficult to prove to HMRC.
Malachy McLernon (m. firstname.lastname@example.org) is a director of PKF-FPM (www.pkffpm. com). The advice in this column is specific to the facts surrounding the question posed. Neither The Irish News nor contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.