autos

Electric Warriors: Tax And Electric Company Cars – Tax – UK – Mondaq News Alerts



UK:

Electric Warriors: Tax And Electric Company Cars


To print this article, all you need is to be registered or login on Mondaq.com.

We suspect that drivers of electric cars may have been unable to
resist a certain feeling of smugness over the past few weeks,
though the interests of personal safety have probably militated
against expressing it too overtly when passing a petrol
queue.  And the expansion of the London Ultra Low Emission
Zone on 25 October is, for some drivers, a further incentive to go
electric.

Not least among the advantages is the tax treatment, most
especially where the vehicle is a company car.

The availability of first-year allowances at 100% is useful
– though given that the vast majority of cars are leased, the
availability of tax relief for the full amount of lease rentals
(rather than just 85% for most cars with
CO2 emissions over 50g/km) is usually more
relevant.

But the real icing on the cake is the modesty of the amount
charged to tax annually on a director or employee in respect of the
benefit-in-kind of an electric company car.

For the current tax year 2021/22, this is assessed at just 1% of
the list price.  That increases to 2% for each of the next
three years.  And that 1% (or 2%) charge covers all the costs
incurred by the company in connection with the car except for

  • Provision of a chauffeur; or

  • Payment by the company of fines, penalties, parking charges etc
    for which the employee is personally liable

In particular, a company can provide the following benefits
alongside a company car without giving rise to any additional
taxable benefit:

  • Insurance

  • Maintenance

  • Installation of a charging point at work

  • Installation of a charging point at the employee’s
    home

  • Provision of a charge card to allow access to charge
    points

  • Recharging at work (or in other circumstances where the company
    has the primary responsibility for paying the supplier)

When you consider that the real value any one of those
additional benefits alone (quite apart from the use of the car
itself) will very often exceed 1% or 2% of the list price of the
car, the extraordinary tax-efficiency of an electric company car is
obvious.

Note that the 1% / 2% rate applies only to pure electric
vehicles: if range anxiety persuades you to hedge your bets with a
plug-in hybrid, the taxable benefit in kind (determined by the
‘electric range’) will most commonly be 11% this year
and 12% for the next three years – still not bad compared
with rates on petrol or diesel models, which can be up to 37%.

Although we have referred to a ‘company car’, it is
more accurate to refer to an ‘employer-provided
car’.  The employer does not have to be a company: the
same rules apply where a car is provided to an employee by a sole
trader, partnership or LLP.

There is scope for tax arbitrage here.  In principle, a
sole trader could provide an electric car and associated benefits
to an employee (a spouse, civil partner or Significant Other, for
example): the employer would claim tax relief for the full amount
of the costs, but the employee would be taxable only on the
artificially low benefit-in-kind.  Of course, it would be
necessary to show that the remuneration package (including the real
cost of providing the car) was commensurate with the work done by
the employee.  But in appropriate cases this may be worth
considering.

Finally, a note on ‘salary sacrifice’
arrangements.  Normally, when salary is given up in exchange
for the provision of a benefit-in-kind, the amount charged to
Income Tax is the higher of the value of the benefit and the salary
given up.  However, these ‘optional remuneration’
rules do not apply where the benefit is a
‘low-emission’ car (meaning one with
CO2 emissions of 75g or less per kilometre, and
therefore including all pure electric and plug-in hybrids): yet
another tax nudge in the direction of ‘going
electric’.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Tax from UK

In Trusts We Trust

Albert Goodman

Trusts have been a part of UK law long before the UK even came into existence – the popular story being that they rose to prominence during the crusades. Certainly, it was around that time that trust law as we know it today



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.