Electric cars as an employee benefit

As Tim Stovold explains, the government has powered up electric vehicle ownership – but is it a tax-efficient option for businesses?

Electric cars have attracted significant tax benefits for several years now, but the comparatively high cost and practical and performance issues have always meant that ownership remained low.

In a surprise move, on 10 September the government announced that additional funding of more than £500m will be made available for rapid charging points. Since it is the availability of charging points and the limited range of electric cars that has proved off-putting for businesses considering company car purchases for employees, this is welcome news and may help firms make the most of the excellent tax benefits.

Electric car technology has also improved, and the market is seeing an image change. The introduction of high-performance vehicles – such as the £60,000 Jaguar I-Pace and Tesla – has given the electric car a status symbol makeover. For a smaller price tag, cars such as the £25,000 Nissan Leaf are proving very popular.

The tax benefits of electric cars are very attractive for both businesses and employees. For the 2019-20 tax year, the taxable benefit-in-kind percentage for electric cars is 16 per cent. This compares favourably with most employer-provided diesel or petrol cars. For instance, a petrol-driven car with emissions of 100g/km has a benefit-in-kind multiplier of 24 per cent. For zero-emissions electric cars registered after April 2020, the benefit-in-kind percentage will be reduced to nil for 2020-21, 1 per cent for 2021-22 and 2 per cent for 2022-23, making electric company cars even more attractive.

There is no fuel benefit charge at all for electric employer-provided cars. Even better, there is no benefit-in-kind charge for employees charging their own cars at a workplace charging station – even where there is private use of the car. 

If an employer were to provide charging stations at employees’ homes to charge their own electric cars, the benefit would be taxable. The cost of charging electric cars remains comparatively low, however, at around a third of the cost of petrol or diesel.

There are also tax and financial incentives for employers. Government grants may give a discount of up to 35 per cent on the purchase price of electric cars, to a maximum of £3,500. The amount of grant available depends on the car model and emissions level. 

Electric cars attract 100 per cent of first-year capital allowances, meaning that employers get full tax relief for the cost of cars in the year of purchase. This compares very favourably with cars with CO2 emissions, which attract only 18 per cent (up to 110g/km) or 8 per cent (more than 110g/km) in writing-down allowances.

Other financial benefits include exemption from car tax and congestion charges.

If employers want to provide a tax-efficient benefit while also gaining green credentials, providing employees with electric cars is an increasingly plausible proposal.

Tim Stovold is head of tax and a partner at Moore Kingston Smith