the benefits of electric vehicle taxation

Ruairdhri McIlroy, Assistant Manager, Tax at Grant Thornton

With a ban on the sale of new petrol and diesel cars planned in the UK from 2030, the rise in popularity of electric vehicles (EV) seems certain.

Globally there has been rapid growth of EV sales, and manufacturers are responding with an ever-growing choice of new vehicles as well as electric versions of models we are already familiar with.

To promote this greener option and drive investment, the government has rolled out a range of incentives to reduce the costs of owning an EV, which will encourage both individuals and businesses to consider an electric option.

Generally, when cars are acquired for business purposes, a tax deduction of 6% or 18% (depending on the level of CO2 emissions of the car) is available each year on a reducing balance basis.

However, 100% of the cost of new, fully electric cars acquired from 1 April 2021 can be deducted from business profits as a ‘first year allowance’.

The super-deduction of 130% that applies to qualifying plant and machinery acquired from 1 April 2021 to 31 March 2023 does not extend to cars, although it is available for all commercial vehicles (vans, etc.) including electric options.

Charging points qualify for 100% relief, and could in some cases, qualify for the additional 30% uplift.

Ruairdhri McIlroy

Where company cars have private use, a tax charge is applied on the benefit to the employee. The company car benefit-in-kind (‘BIK’) is calculated with reference to the list price of the car, fuel type, and CO2 emissions produced by the vehicle. This can result in a hefty taxable benefit of up to 37% of the list price.

Currently however, the BIK on fully electric cars is just 1% of the list price (rising to 2% in 2022/23). Equally attractive are electric vans with a 0% BIK, compared to a petrol or diesel equivalent which results in a BIK of £3,500.

The provision of a home charge point by the employer in respect of a company car is a tax-free benefit, however a benefit based on the cost to the employer will apply if the car is personally owned.

The benefit-in-kind relevant to providing electricity for charging EVs varies and is dependent upon factors including whether the vehicle is charged at home or work, and whether the vehicle is a company car or personally owned.

Even in situations where a benefit-in-kind does arise on the provision of electricity for charging, it is likely to be considerably less than the benefit-in-kind that applies on the provision of petrol or diesel for private use.

These incentives and others not included in this article, may lead to a significant increase in the uptake of EVs by businesses.

However, if EVs are to become the norm, with petrol and diesel vehicles relegated to the history books, a range of practical, commercial, and environmental questions must still be answered.

For further information or advice, Ruairdhri McIlroy can be contacted at Ruairdhri.

Grant Thornton (NI) LLP specialises in audit, tax and advisory services.