Benefits of electric vehicles for you and your business

Benefits of electric vehicles for you and your business

With electric car and vehicle technology improving and more choice, electric vehicles are an increasingly beneficial option for drivers. As a business owner, it could make financial sense, as well as being a positive move for the environment to run an electric vehicle.

The UK Government has set a target for ceasing all production of internal combustion engine vehicles by 2035. The Government is seeking to incentivise electric vehicles (EVs) to encourage individuals and businesses to switch from petrol and diesel vehicles.

In the past few years, there have been several changes to the rules around providing electric vehicles as company vehicles, reimbursing business use of personally owned electric vehicles and installing charging points for EVs.

Not only are there tax benefits of electric cars but also running and servicing cost reductions that can be achieved. This blog covers the tax benefits of owning an electric vehicle for you, your business, and your employees.

Can I buy an electric car through my business?

If you buy or lease a car out of your own after-tax earnings (your director’s salary or your dividends), you will have already paid tax on those earnings. However, there are clear tax benefits of purchasing or leasing a vehicle directly through your business.

What are the tax advantages of putting an electric car through the business?

There are capital allowance tax advantages when you buy or lease a car through the business, these are as follows:

Capital allowances benefits for electric vehicles

Businesses can claim the full cost of a zero-emission (0g/km) electric vehicle, in the form of a 100% first year allowance (FYA), against the profits of the year of purchase.

There are no restrictions on the value of the vehicle. However, the car must be purchased new and unused.

Leasing of an electric vehicle

If the business opts to lease the vehicle instead, this will also benefit from a 100% deduction of the leasing costs incurred each year against profits.

Electric charge points and charging costs tax advantages

Electric vehicle charging points are eligible for 100% allowances. Where the business installs charging points for electric vehicles up to 31 March 2025 the 100% first-year allowance (FYA) for qualifying expenditure on plant and machinery (equipment) is available for Corporation Tax purposes, and to 5 April 2025 for Income Tax purposes.

Can my employees use electric cars for business purposes?

When it comes to employees using their own electric vehicles for business purposes and claiming expenses for charging a company car at home, the tax implications can be complicated.

Until recently HMRC stated that if you charged a company car at home, the reimbursement for charging would be taxable as earnings. However, HMRC have now updated this to include home charging of electric cars and vans at home falls within an exemption to Income Tax.

HMRC stated: “Following a review of our position, HMRC now accepts reimbursing part of a domestic energy bill, which is used to charge a company car or van, will fall within the exemption provided by section 239 ITEPA 2003.”

This means that the reimbursement your employee gets for charging a company car at home is no longer taxable.

Benefit in kind on electric cars

Employees pay income tax on certain benefits in kind (BIKs) they get from their employer on top of their salary. Such benefits are taxed by HMRC by adjusting the employee’s tax code, resulting in more tax being deducted from the salary before it arrives in their bank account.

Any driver who uses a company car for personal use pays Benefit in Kind tax out of their monthly salary. This is based on the percentage of list price of a company car or van which is taxed and the CO2 emissions of the vehicle. Until April 2025, electric cars (with zero emissions - 0g/km) are taxed at just 2% of the list price. From April 2025, the BiK rate will increase by 1% every year until 2028.

Where the employer pays for the cost of charging the company-provided electric vehicle there is no taxable fuel benefit for the driver, as electricity is not classified as a fuel for the car or van benefit regulations.

From 6 April 2018, where the company allows employees to charge their own electric vehicles at the workplace, there is no taxable benefit for the provision of that free electricity.

For this tax exemption to apply, the charging facilities must be provided at or near the workplace, which is the same requirement that applies to tax-free workplace parking. This tax exemption does not apply if the employer reimburses the costs of charging the employee’s own vehicle away from the workplace, such as at a motorway service station.

Where the driver of the company electric vehicle pays for the electricity to power it, either from their domestic supply or by charging at a roadside station, the employer may reimburse the employee for that cost. With a roadside charge it is easy to see what the total cost is, but it is not so easy to calculate the cost per mile when charging from a domestic supply.

This problem has now been solved, as the employer can pay the company car driver 9p per mile, to reimburse them for the cost of the electricity used for business journeys with no tax implications. This rate only applies to company-owned electric cars, not to private vehicles.

Electric vehicles still make sense from company car drivers, as even with an increase in the BiK rate, the tax is much lower than for hybrids or petrol and diesel cars. So, employees will save tax in the long run with a company provided fully electric car, over company provided traditional cars that run on petrol or diesel car.

Salary sacrifice

Where an employee has a car provided under salary sacrifice, the benefit is valued as the higher of the amount of salary given up or the taxable benefit. However, the optional remuneration rules do not apply if the company car has CO2 emissions of less than 75g/km.

Low-emission vehicles eligible for a plug-in grant

Some types of low-emission vehicles are eligible for a grant from the government, so that you can buy them more cheaply.

You do not apply for the grant. The seller includes it as a discount in the purchase price.

Only vehicles that have been approved by the government are eligible.

The discount you can get depends on the type of vehicle.

The types of eligible vehicles are:

• wheelchair accessible vehicles
• motorcycles and mopeds
• small and large vans
• small and large trucks
• taxis

As the grant is automatically deducted from the price of the car at source by the dealer, it gives you an instant discount and reducing your outlay.

Other considerations for electric vehicles

VAT

Under current law, an electric vehicle will still be viewed as a car for VAT purposes. Therefore, VAT is not recoverable on purchase, unless it can be demonstrated that the car is only available and used solely for business purposes. In practice this is very difficult to achieve.

The same VAT recovery rules also apply for leasing purposes with 50% VAT recovery on the leasing charge available. Full VAT recovery, subject to the usual partial exemption and business use tests, is available on ongoing maintenance of leased cars.

When recharging vehicles, VAT is charged at 20% on electricity from public chargers compared to only 5% if you charge your car at home.

Can my business benefit from government incentives for electric cars?

The answer to this question is yes, with excise duty, van benefit charges and fuel benefit charges, your business could benefit from switching to electric cars and vehicles.

One of the most attractive electric car benefits for businesses is the enhanced capital allowance benefits. With a 100% first-year capital allowance, most companies can claim the entire cost of an electric vehicle against taxable profits in the same year as the purchase.

Are electric cars cheaper to run than petrol and diesel cars?

From April 2025, the cost of running an electric car will undoubtedly increase. This is because drivers of EVs will no longer be exempt from road tax. Other factors including the removal of some government grants, the higher list price of an EV over petrol and diesel, and the rising prices of refuelling has left many business owners wondering whether the switch to electric is financially worth it?

There is no denying that some of the tax advantages for electric vehicles are very attractive, including the ability to claim first year capital allowance. However, whether electric vehicles work out better value for you in the long term depends on a wide range of factors, including

• The list price of the vehicle(s)
• How much you intend to use the vehicle(s)
• The cost of insurance
• The distances being travelled by the vehicle(s)
• How and where you charge the vehicle(s)
• Ongoing service and maintenance costs

Get expert business tax advice from Haines Watts

At Haines Watts, our tax advisers understand the complexities of tax and the tax rules around EV's and your business. Before making the decision to purchase an EV yourself, through the business or switch your company vehicle fleet to EV's speak to one of our expert tax advisers for advice.

Conclusion

There are many reasons for business owners to consider electric vehicles and purchasing an electric car EV for themselves through the business.

The downside of electric vehicles, depending on the types of journeys you undertake, the mileage range on a single battery charge, time needed to charge the car, finding suitable charging points and ongoing costs of insurance & maintenance.

However, there are many benefits including electric cars being better for the environment, lower running costs, better resale values, and the tax benefits can be substantial.

If you want advice on the most tax-efficient way to purchase or lease electric cars and vehicles, then contact us at our offices in Chester, Wirral or Liverpool.