Here, LWA clarify any confusion about tax, reliefs and Benefit in Kind (BIK) payments.
What tax is due on Benefits in Kind for an electric company car?
Employees pay income tax on the benefit in kind (BiK) value for the provision of a company car when used for their personal use. It is calculated by HMRC based on a percentage (BiK rate) of the car’s “P11D” value, compared to just receiving an equivalent amount in pre-income tax pay.
During 2020 / 2021 the benefit in kind rate for hybrid vehicles with emissions from 1 - 50g/km and a pure electric range of over 130 miles was 0%. The electric car tax on BIK rate increased to 1% in 2021 / 2022 and is 2% in 2022 / 2023.
What tax is payable if I charge my company car at work or at home?
If an employer allows an employee to charge their company car at a charging point at the place of work, this will not give rise to a taxable benefit in kind as electricity is not classed as fuel and therefore does not trigger a fuel benefit. However, these conditions must be met:
- Electricity must be provided via a dedicated charge point
- The charging facilities must be provided at or near the workplace
- Charging must be available to either all employees or all the employer’s employees at a particular location.
Employee’s do not pay tax or National Insurance on the electricity used to charge the car and the employer does not have to report anything to HMRC.
If an employer pays for a vehicle charging point to be installed at the home of an employee, this is not a taxable benefit in kind if the car is a company car.
If an employer pays to charge a car owned by you
If an employer allows an employee to charge their own car at a charging point either at the place of work or at home, then a taxable benefit in kind arises based on the cost to the employer.
Electric company cars vs car allowance used for a personal electric car
Car allowance is money paid by your employer as part of your overall salary, so if you use this allowance towards a car that you own, and the employer pays for charging the car whether at a place of work or at home then a benefit in kind will arise and Income Tax is payable by the employee on the cost to the employer for the provision of charging.
Does a Benefit in Kind arise for using charge cards?
If an employer pays for a charge card of say £100 per year which allows employees to use local authority or public charging points, to charge their company car, this will not trigger a taxable benefit in kind.
However, if the charge card is used to charge the employees personal car, this will be a taxable benefit based on the cost to the employer.
Mileage allowance can be claimed based on the advisory electricity rate of 5p per business mile
What other grants and tax reliefs are available for having an electric car?
The Office for Zero Emission Vehicles (OZEV) is currently offering four grants to help fund electric cars and EV chargers:
- Plug-in Car Grant (PICG) - discount when buying a brand new low-emissions car
- Electric Vehicle Homecharge Scheme (EVHS) - grant contributing to the cost of charging point installation at home
- Workplace Charging Scheme (WCS) - helps businesses with the upfront cost of charger installation
- On-street Residential Chargepoint Scheme (ORCS) - support for local authorities looking to install on-street residential car chargers
Cars with CO2 emissions of less than 50g/km are eligible for 100% first year capital allowances. This means employers can deduct the full cost from your pre-tax profits for purchasing an electric car.
On a car costing around £40,000 this could amount to a tax relief of £7,600 in the first year.
Often referred to it as 'road tax', 'vehicle tax' is a personal tax most car owners have to pay, depending on the carbon dioxide emissions of their car. How much you pay depends on whether you have a pure electric car, a hybrid car.
- Pure electric cars. These are exempt from the vehicle tax, meaning it’s free to tax them.
- Hybrid cars. They're liable to vehicle tax and you can pay anything between £0 - £135 per year depending on the levels of CO2 emissions.
There are no additional VAT reliefs for charging your electric car. If you charge it at home, you pay a standard VAT of 5%. Business electricity is charged at a standard VAT of 20%.
However, there is no fuel duty, which currently sits around 58p per litre before tax is applied.
Contact us for further support
If you’re an employer looking to provide electric company cars to your employees, and need some advice about tax, please speak to a member of our helpful Corporate & Personal Tax team in South Manchester on 0161 905 1801 or in Warrington on 01925 830 830.
Further reading and advice:
- Policy Paper - Workplace charging for all electric and plug-in and hybrid vehicles
- Check if you need to pay tax for charging an employee’s electric car
- How much does it cost to charge an electric car?
- Road tax & company car tax on electric cars
- Let us help your business drive electric