There is significant movement in the provision of electric vehicles into the UK market. In the last month the Government has announced that new petrol and diesel cars will no longer be sold after 2035. But whilst this is a long-term transition there are some more immediate changes to tax rules around employer provided vehicles that emit lower emissions.
From 6th April 2020, the tax regime for employer provided cars will change and will affect not only an employee or director who has an employer provided car, but it will also impact the employer who is providing the car.
If your employer provides a car, the employee or director is liable to pay income tax on the benefit. The level of benefit is based upon vehicle’s carbon dioxide (CO2) emissions and its list price. The employer will be liable to a Class 1A National Insurance Contribution (NIC) charge at 13.8%.
From April 2020 the main changes will be:
- The CO2 emissions for cars registered from 6th April 2020 will be based on a new test procedure
- A zero-tax rate will apply for 2020/21 on wholly electric cars and hybrids which have a long electric only range
- Lower rates will apply for some other hybrid cars
The new emissions test standards.
The new test for measuring emissions is the Worldwide harmonized Light Vehicle Test Procedure (WLTP) and is deemed to be more accurate than the current New European Driving Cycle (NEDC) that it is replacing. Car manufacturers expect it to show higher vehicle CO2 emissions. For cars registered before 6th April 2020, the NEDC test will still be used.
The Government has announced that for most company cars registered after 5th April 2020, car rates will be reduced by two percentage points for 2020/21 from the rates previously announced for that year. The rates will increase by one percentage point in the following two years, returning to planned rates by 2022/23.
What are the different types of electric vehicles?
Pure Electric Vehicles (PEV) use rechargeable batteries and run solely from electrical power rather than an internal combustion engine and are therefore zero-emission vehicles
Hybrid Electric Vehicles (HEV) use power from two sources – petrol or diesel and electric. The HEV will switch between the two power sources and generally only have a small electric-only range
Plug-in hybrid vehicles (PHEVs) are more advanced than HEVs and recharge their batteries from an electrical source and therefore have a higher electric-only range
The new tax rates
PEVs regardless of when they were registered will be subject to a zero rate, so drivers will pay no company car tax in 2020/21. The current rate is 16%. The rate will rise by a single percentage point in each of the next two years and will be 2% in 2022/23
Hybrids may benefit from the introduction of new performance-related bands for vehicles with emissions up to 50g/km depending on how far the hybrid vehicle can travel under electric power
Cars with CO2 emissions above 50 and up to 84 might also benefit from a rate reduction compared to current rates
The diesel supplement
An additional supplement of 4% of the car list price applies to diesel cars up to a cap of 37%. This supplement does not apply to diesel hybrids, or if a car is registered after 1st September 2017 and meets the Euro Standard 6d emissions.
Fuel and provision of electricity
An additional taxable benefit arises when fuel is provided by the employer for private mileage. This is an expensive benefit to provide to an employee unless the car has very low CO2 emissions. Electricity is not regarded as a fuel for car fuel benefit purposes and therefore there is no fuel benefit if an employer pays to charge a PEV. There is a reimbursement of electricity costs incurred by an employee at 4p per mile for business journeys for employer provided PEVs.
Hybrids are subject to normal fuel benefit rules and remain subject to the normal authorised mileage rates for the costs of petrol or diesel incurred by an employee on business journeys. But there is no taxable benefit if the electricity is provided by workplace charging points for employer and employee provided costs. This is applicable to all Electric Vehicles.
There is a 100% first year allowance for expenditure on electric charge-point equipment until 31st March 2023 for corporation tax and April 5th 2023 for income tax
There is a 100% first year allowance for expenditure on the purchase of new and unused cars with CO2 emissions up to 50g/km. This applies until 1st April 2021 (5th April for unincorporated businesses)
Expenditure on cars with CO2 emissions not exceeding 110 g/km are pooled in the main rate pool with an 18% writing down allowance. Those with emissions over 110 g/km attract a 6% writing down allowance
Plug-in car grant
Electric vehicles can benefit from the Plug-in Car Grant. This is 35% of the purchase price of the car, capped at £3,500. CO2 emissions must be under 50 g/km and the vehicle needs to be able to travel a minimum of at least 70 miles without any emissions. Car dealers include the value of the grant in the car’s price.
Vehicle Excise Duty
This is set at zero for zero-emission cars. Cars that are registered after March 2017 incur a first-year rate of duty between zero and £2,070 depending on the level of emissions. This is then followed by a flat rate in subsequent years.
Questions not answered? Get in touch with Sence Accounting team – we’re always here to to provide guidance.