Electrification of Companies’ Vehicle Fleet
As energy and fuel costs across the UK soared in 2022, the uptake of electric vehicles by Britons continued to rise corroborating the hypothesis that the cost difference between an internal combustion engine (ICE) and electric vehicle is narrowing rapidly. Furthermore, consumers and companies switching to electric vehicles may be better positioned to benefit from a host of advantages exclusive to such vehicles which this article will attempt to cover in depth.
1]Capital Allowances: Did you know that the cost of an electric vehicle (EV) is tax-deductible in full in the year of purchase itself through the First Year Allowance (FYA)? This gives companies the opportunity to reduce their Corporation Tax liability at the earliest chance given that hybrid and high-emission cars gain capital allowances at a much slower rate. If the car’s CO2 emissions lie between 1-50 g/km the company can claim 18% Writing Down Allowance (WDA) on a reducing balance basis whereas for vehicles with emissions above 50g/km, this drops to just 6%. The company also benefits from the fact that the FYA isn’t time-apportioned so even though a company’s accounting period could be less than 12 months, it will still be eligible to claim 100% FYA on the cost of the EV. This isn’t the case with the WDA for most other assets. In addition, the company may choose to install EV charging points at its facility, and these would also be eligible for Enhanced Capital Allowance which allows 100% of the cost of installation of the EV charging point to be reclaimed.
2]Benefits in Kind: Providing company assets to employees for their personal use often qualifies for benefits in kind (BIK) albeit there are certain exemptions and conditions. The usual tax implication of providing a BIK is that the employer pays Employer National Insurance (currently 13.8%) whilst the employee pays 20% Income Tax (i.e., PAYE) on the cash-equivalent value of the BIK less any employee contributions. This applies to extending a company car for personal use too. However, if it’s an EV the treatment is far more generous. As part of the ‘greenification’ of the tax-system, HMRC has linked the % used to compute BIK for cars to their CO2 emissions. The % can be as high as 37% for high-emission cars which implies employees can be liable to incur PAYE on 37% of the list price of the car if it’s emissions are high enough. EV’s are cleaner and therefore, for the 2022/23 tax year, the % applicable to the list price is just 2%. This is expected to remain in place until 2025. This also presents a massive cost-saving to employers as their Employer NIC will also be computed upon just 2% of the EV’s list price. An irrefutable win-win situation for both employee and employer. For electric van’s, there isn’t any BIK provided the private use is insignificant which can be understood as only using the van for travelling to and from work.
3]Vehicle Excise Duty (i.e. Road Tax): Albeit the government recently announced its intention for EV drivers to start paying road tax, this will not be effective until 2025 onwards hence EV drivers can also benefit from savings in this aspect for another 2.5 years. This presents an average annual saving of £166 which the typical motorist pays as per HMRC. Given the current cost of living crisis, that is £166 which can be better spent elsewhere or invested to earn interest or dividends.
4]Improved Sustainability Credentials: The government has set a target of the sale of new diesel and petrol vehicles to be banned from 2030 onwards unless they are able to travel a significant distance on zero-emissions. Similarly, shareholders activism amongst external pressure from other stakeholders had focused attention across C-suite’s on how their companies can perform well across the fundamental ESG (Environmental, Social and Governance) criteria. Chief amongst this will be reducing the company’s emissions as measured by Scope 1 (direct emissions which are within its control), 2 and 3. A company whose fleet is electric will reduce its Scope 1 emissions and therefore can focus more on mitigating its Scope 3 emissions which are arguably the most difficult to control since they arise from activities outside a company’s environment, upstream and downstream in the value chain. This should be a valuable incentive given the mounting pressure on countries (and consequently businesses) to limit global warming to 1.5 degrees above the pre-industrial levels.
To seek advice on how your company can fully exploit the host of advantages from ownership of an EV (or fleet of EVs), contact Cheylesmore Chartered Accountants today. We also provide other tax and self-assessment services to streamline your organisation’s accounting functions and mitigate the headache of outdated systems and non-responsive accountants
