Tax incentives to employers for offering electric company cars
Finance & Funding
Key learnings
- HMRC sets its tax rules for company cars based on emissions – so the lower the better.
- Tax rates for electric-only cars can be just 2% of the original list price, compared to 24% for petrol or diesel-only.
- Salary sacrifice can be used to further reduce the monthly cost to employees.
- UNW can help assess the benefits of moving to electric company car fleets.
The company car is a popular incentive that employers have offered their employees for many years but there are tax implications associated with them. However, there can be several opportunities for employers to save tax and National Insurance by you offering low emission vehicles, as UNW explains.
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1
What is the background?
The tax rules for company cars are designed to encourage the use of low emission vehicles. So what are the tax benefits of low emission cars and is now the time to consider the move to zero or low-emission vehicles?
2
What is the issue?
There are a number of opportunities for employers to save tax and National Insurance (NIC) by switching to cars which have relatively low emissions (measured with reference to their carbon dioxide levels).
For those who are currently driving either petrol or diesel-only vehicles, the car benefit tax rules are especially penal, with benefit-in-kind rates averaging 25% of the original list price compared with the lower tax rates on offer for pure electric vehicles (1%) and hybrid vehicles (those using both electric and either petrol or diesel) which can be less than 14% depending on the amount they can travel on the electric part of their engine.
In addition, as the tax and NIC rates climb for the provision of fuel for private journeys, there are useful incentives in looking at reimbursement of the costs of private fuel or moving to vehicles that require charging rather than filling up at the pump.
3
What do employers need to consider?
- What are the average and actual emissions of their current fleet?
- What is the tax and NIC cost in providing employees with their current vehicles?
- Can they move towards a lower emissions fleet to utilise tax and NIC savings?
- Are there any advantages for current tax year for employees to reimburse them for the costs of their private fuel?
- Can they utilise the advantages of salary sacrifice or an employee car ownership plan (for their higher mileage drivers)? For example, a driver provided with a BMW I3 Hatchback 125 kW Auto would save approximately £225 per month by their employer providing this via salary sacrifice rather than the employee paying for the car privately.
Employers also need to ensure that any compliance aspects of the changes are taken into consideration so that they are not building any unforeseen tax liability if HMRC was to undertake an employer compliance review in the future.
Next steps…
- Employers should assess their current tax and NIC costs of providing company cars and fuel.
- Ask employees whether they would be interested in being offered lower emission or electric options for a company car.
- Assess what the cost of each option would be over the lifetime of the cars using this employees’ company car calculator.
- UNW can help you with all the above as well as any other employment tax rated matters.