UK: Electric and low emission vehicles

Technology in today’s vehicles is constantly improving and changing. Car manufacturers have transitioned from all cars being powered by finite fuels to 2021 where 27.5% of the car market was electrified in some way, whether being fully electric or a hybrid. With this move there is a requirement for infrastructure to change as electric vehicles need charging stations to be able to become more feasible for the wider population. 

The UK has implemented a ban on the sale of new petrol and diesel vehicles by 2030, meaning that manufactures will be putting their resources into the research and development of electric and hybrid vehicles ready for this. We can only assume that the market share of electric vehicles will increase as the price of an electric vehicle will fall with engineering breakthroughs, efficiencies within the manufacturing process and economies of scale as the production numbers increase. 

There are and have been tax benefits in providing an electric vehicle as a benefit in kind (“BIK”) to an employer/director through a company. The BIK percentage is calculated by looking at the CO2 g/km of the vehicle as well as the electric range on the vehicle. For standard petrol cars which have CO2 emissions between 51-54, the BIK rate is 15% for 2021/22. The BIK percentage increases as the CO2 emissions increase, and this goes up to 37% for the 2021/22 tax year for vehicles which produce 160+ g/km of CO2 emissions. The BIK rate for electric vehicles with 0 g/km of CO2 emissions is 2%, accordingly, there can be a large tax saving here as well as saving on road tax as these charges are also currently £0 per annum for fully electric vehicles with 0 g/km emissions. Again, this increases as CO2 g/km emissions increase. 

If employees can charge their electric vehicles at work for no cost to the employee, this is a tax free benefit and so is not included on the employees P11D. 

Capital allowances

If a business buys a brand new fully electric vehicle, the business can receive full tax relief for the purchase year by claiming First year allowances on the full list price. Therefore, if a £40,000 car was purchased, there can be Corporation tax savings of 19%, being £7,600 rather than having to use written down allowances. Compared to a vehicle purchased from April 2021 with CO2 emissions between 1-50 g/km, the main rate is used for capital allowances, being 18% of the cars value which can be claimed as an expense.

Government Grants 

There are grants available as well to subsidise some of the costs involved with purchasing an electric vehicle, such as the installation of at home charging points however these are being reduced. 

From April 2022,the EVHS (ElectricVehicleHomecharge Scheme) will only be available to flat owners and people living in rental accommodation. However, this grant reduces the cost of installing a home charger by 75%, up to £350. 

There are also grants which help reduce the cost of the vehicles and these grants are available for cars, wheelchair accessible vehicles, motorcycles, mopeds, vans, taxis and trucks. To receive a grant, the vehicle as to have been approved and confirmed eligible for a grant. Each category of vehicle has different requirements to be eligible for the grant and the grant is up to 35% of the RRP, limited to a different amount for each category. For cars, the grant amount is limited to £1,500. Manufacturing electric vehicles is an ever changing industry, and with this the tax implications, benefits and grants will also be changing to stay up to date.