Empowering the Green Drive: Tax Electric Vehicles

Understanding the New Tax Landscape for Electric Vehicles

The ever-evolving taxation landscape for electric vehicles (EVs) has shifted once more. Previously perceived as a tax-efficient option, recent regulatory modifications have introduced essential updates.

Electric cars traditionally constituted a less burdensome company benefit than their combustion engine counterparts, often resulting in notable savings. Over time, accountants have guided their clients towards this cost-effective choice.

This article delves into the latest changes and future amendments and evaluates whether EVs continue to be an effective tax-saving solution.

tax electric vehicles

Capital Allowances (Tax Electric Vehicles):

Claiming Full Cost Until 2025 A significant advantage of acquiring an electric vehicle is the provision to claim first-year allowances. Until March 31, 2025, companies can claim a 100% first-year allowance on EVs. They are allowing the deduction of the complete cost of the vehicle from taxable profits.

The same deduction is applicable for businesses that establish EV charging stations. Cars do not qualify for the annual investment allowance or the new full expensing scheme. However, commercial vehicles such as vans do and may also be eligible for the government’s plug-in grant. Therefore, it’s worthwhile to verify the vehicle’s category.

Benefit-in-Kind: Steady at 2% until 2025. Electric cars boast a comparably low benefit-in-kind (BiK) rate. Although EVs were previously exempt from BiKs, this rate increased to 1% of the list price in 2021 and again to 2% in 2022.

This rate will stay unchanged until April 2025, which will rise by 1% annually until 2028. This rate allows for streamlined tax planning and a considerably lower rate than vehicles with higher emissions.

Vehicle Excise Duty (Tax Electric Vehicles):

Alterations in Tariffs Historically, EVs were excused from vehicle excise duty (VED, also known as ‘road tax’), and their popularity surged. In 2022, battery electric vehicles constituted nearly 17% of all sales, outpacing sales of diesel cars for the first time.

However, from 2025 onwards, the government will necessitate EVs to pay the same VED rates as petrol and diesel vehicles.

Advisory Electric Rate (Tax Electric Vehicles):

Quarterly Revisions Earlier this year, HMRC announced a change in their methodology for calculating the advisory electric rates (AER). This rate is the recommended tariff for reimbursing employees’ EV charging costs for business journeys in company-owned vehicles.

Previously, the Department for Business, Energy & Industrial Strategy (BEIS) provided annual data for the basis of the AER. HMRC will compute it in the future every financial quarter, utilizing data from BEIS and the Office for National Statistics and car electrical consumption rates from the Department for Transport and annual car sales volumes to businesses.

In March 2023, the AER increased from 8p per mile to 9p per mile. However, given the recent uptick in electricity costs, some worry that this does not adequately compensate for the added expenses.

Is Investment in EVs Still Worthwhile? While the tax cost of providing an EV as a company car is slowly rising, it is still far more cost-effective than petrol or diesel vehicles. Plus, they offer the added advantage of being environmentally friendly.

However, some considerations for your clients include the higher upfront cost of purchasing or leasing an EV and the extra planning needed for charging on long journeys. They will also need to consider the cost of recharging, which may count as a taxable benefit depending on the energy source.

R&D grants are still a great way to expand your business, provided that you qualify correctly and that you are using the correct experts to file these claims for you. The UK government is really encouraging businesses in this sector and want the UK to be a thought leader.

Vehicle Tax Rate Tables

Gov.UK Website

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