Emissions-based tax charge
Salary sacrifice in return for a company car has long been popular but, unlike other so-called benefits-in-kind, the income tax charge for cars with emissions of less than 75g/km isn’t based on the salary given up. Instead, it’s based on a set percentage, deﬁned by HMRC, of the list price for the car.
For a fully electric car, the rate is 2% until 2024/25, rising one percentage point a year thereafter until at least 2027/28 when it will be 5%. For a hybrid car, the percentage is based on a combination of the CO2 emissions and the electric range of the car.
The employer benefits from national insurance contributions (NICs) savings in that they don’t pay Class 1 NICs on the foregone salary. Instead, they pay class 1A NICs on the lower benefit-in-kind amount.
VAT on charging
Another tax benefit of EVs (whether it’s a company vehicle or not) is that VAT incurred by companies for charging vehicles can be recovered for business use – if the car is charged at work or at public charging premises.
However, HMRC guidance on employees charging an EV at home is that the employer is not entitled to recover any VAT on the cost of charging for business use. More details are on the Motoring Expenses page on Gov.uk site.
While the June 2023 sales of battery-powered EVs in the UK rose 39.4% compared to last year, a government-funded report has warned of increased insurance costs. This is because battery vehicles are more expensive to repair, take longer to fix and are more commonly written off because of damage to their batteries.
Can we help?
If you’re considering switching your business vehicles to electric, do talk with one of the Shipleys team to discuss the latest tax incentives and implications.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.
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