Petrol and diesel prices at an all-time high – is now the time to change to electric?

The UK’s net-zero carbon strategy is rightly focusing minds and is showing through increased demand for electric company cars.

There are various benefits to an employee and business owners in purchasing a fully electric company vehicle. NB: its important that the car is brand new, rather than second hand, in order to benefit from all the tax advantages.

Benefits and Capital Allowance

For employees being offered a company car by their employers, a major consideration will be the comparative benefit-in-kind tax charge. For example, comparing a brand new fully electric Tesla Model X to a Mercedes S450L petrol company car, shows the substantial difference in tax costs for the employees, based on the current tax rates under the current Government:

For employers, a major consideration will be the capital allowances available. Again, comparing a brand new fully electric Tesla Model X to a Mercedes S450L petrol company car, shows the substantial difference in capital allowances for the business owner, based on the current tax rates under the current Government:

*Please note the percentage of FYA/WDA that can be claimed through an unincorporated business depends on what percentage of usage is business vs private.

Electric car charge points

If a business installs, at their workplace, charging points for electric vehicles, they can claim 100% FYAs for these costs and if employees can charge up their own electric cars each day at the workplace, there is no taxable benefit in kind. However, the following conditions must be met, in order for the exemption to apply:

• The charging facilities must be provided by the employer, at or near the employee’s workplace.
• The electric charging must be available to all the employer’s employees generally, or all the employer’s employees generally at the employee’s workplace.
• The charging facilities must be for the battery of a vehicle in which the employee is either the driver or a passenger.

Salary sacrifice

This can be one of most cost-effective ways to drive an electric car, not to mention a significantly attractive part to an employee motivation and reward package. This type of scheme lets the employee pay for an electric car each month via their monthly gross salary – this payment by the employee is before tax and national insurance contributions are deducted. Many employees are now agreeing to a salary sacrifice, in exchange for a fully electric company car resulting in a tax and NIC saving for the employee. 

If an employee has a traditionally propelled car provided by their employer for them under salary sacrifice, the taxable benefit is the higher of the amount of the salary given up or the taxable car benefit.

However, the salary sacrifice anti-avoidance legislation does not apply if the company car has CO2 emissions of less than 75g/km. It is therefore possible for an employer to provide fully electric and certain very low emission hybrid company cars, pursuant to a salary sacrifice arrangement, and for the employee to retain the tax benefits. 

Benefits for employees

• The most cost-effective way to drive an electric car;
• Generally, all servicing, insurance and road tax covered;
• Ability to pay with your gross salary, resulting in tax and national insurance savings.

Benefits for employers

• Improved staff recruitment and retention;
• Route to lowering its carbon footprint;
• Ability to offset against salary increments;
• An all employee benefit option.

Employers should though be fully aware that they will be responsible for making lease payments through to the end of the contract if an employee leaves the business.  The lease liabilities also need to be factored in when considering debt covenants and the overall impact on the business balance sheet.

There are other disadvantages to buying a car through a business rather than personally (e.g. certain consumer protections for individuals don’t apply to businesses) so it is important to take a holistic view before making a decision.

Government Grants 

The Government wants to help businesses install electric vehicle (EV) chargepoints for their operations and staff.

The EV infrastructure grant for staff and fleets will give money towards the infrastructure businesses need for chargepoints, as well as for installing the chargepoints themselves.

In order to apply for the grant, the following conditions must be met:

• The business must be registered at Companies House or be VAT registered with HMRC.
• The business must have 249 employees or less.
• The business must satisfy state aid requirements. It must have received – or have currently pending at the time of application – less than €200,000 of public support in the past 3 financial years and satisfy the state aid requirements for de minimis aid.
• The chargepoints installed must be exclusively for staff or fleet use, they cannot be for visitor or guest use.
• A minimum of 5 parking spaces must be provisioned with charging infrastructure, at least one of which must have a working chargepoint.

The total amount of grant funding available cannot be more than 75% of the cost of the installation of the chargepoints and infrastructure charged to the customer and the amount available per grant is capped at £15,000.

Additionally the infrastructure grant pays towards both the infrastructure and the chargepoints that you install at the same time as the infrastructure.

1. Infrastructure – A grant of up to £500 for each parking space that the charging infrastructure will provide a unique chargepoint socket to, either from installed chargepoints or those that will be installed at a future date via the future connection locations.

2. Chargepoints – A grant of up to £350 towards the cost of buying and installing each chargepoint socket provided.

Further information on Government grants can be found on the Government’s website by clicking on this link.

Whilst the above article covers the positive aspects of owning electric cars, there are a number of pitfalls to be wary of, especially if you are buying the car for an unincorporated business, so please do get in touch to discuss your plans with us before you buy.