car on blurry road

Company car tax: zero benefit on electric vehicles

Nick Irvin, Assistant Manager, Employment Tax
car on blurry road

As part of plans to reduce carbon emissions in the UK, the ban on the sales of new petrol, diesel or hybrid cars in the UK has been brought forward from 2040 to 2035.

This is the most recent of a number of initiatives to move towards electric vehicles in the UK. Another of these initiatives is the recent announcements on the benefit in kind treatment for employees who are provided with a car or van by their employer.

Salary sacrifice on electric cars

From 6 April 2017, the tax and National Insurance Contributions (NICs) advantages where benefits are provided through a salary sacrifice arrangement were largely withdrawn. The new rules for most benefits ensure that the taxable value is the greater of the taxable value under normal benefit in kind rules along with the amount of pay given up as part of the salary sacrifice arrangement.

However, the new rules do not apply to cars with CO2 emissions of 75g/km or less, which will continue to be taxed on the cash equivalent of the benefit. Therefore, the taxable value of these cars will only consider the normal benefit in kind rules.

Benefit in kind rules for electric cars

Typically, the benefit in kind on the provision of a company car is calculated based on the list price of the car, the date is was registered, its fuel type, its CO2 emissions and, from 6 April 2020, the electric range of electric cars.

Following a review of vehicle taxes, the government announced that most company car tax rates have been reduced by 2% in 2020-21 for vehicles registered on or after 6 April 2020, increasing by 1% in each year until 2023.

More importantly, however, the company car benefit rate for 2020-21 is 0% for:

  • all fully electric cars
  • for cars registered on or after 6 April 2020 with CO2 emissions of 50g/km or less and an electric range figure of 130 miles or more.

While these rates are proposed to increase by 1% in each year until 2023, this means that there will be no tax due on the benefit on company cars that meet the above criteria in 2020-21.

The benefit of electric cars doesn’t stop there; unlike the provision of fuel, the provision of electricity by employers for charging full electric company cars is not taxable, even if the car is used for non-business purposes by the employee.

Zero-emission vans

In addition, HMRC have published draft legislation to reduce the benefit charge for zero-emission vans to nil from 6 April 2021.

If you have any queries relating to the employment tax implications of providing a vehicle to your employees, please speak to your usual Crowe contact.

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