But what about those who drive? Can going electric really be a benefit for both employers and employees?
For our final article of our tax planning series, Steve Bailey, Tax Manager, takes a deeper dive into the advantages of going green when it comes to company cars, and some perhaps, surprising tax relief benefits of a more carbon free commute.
Over to Steve…
As said before, a lot of companies are looking at options they can implement in order to do their part for the planet, with some having to change every day practices that they’ve only ever known. With the rise of a green car scheme, an increasingly popular arrangement, it not only helps the environment, but companies too.
So, is it time to ditch the diesel?
A green car scheme is a benefit more and more companies are offering. There can be multiple benefits as both an employer and employee.
Benefits for employers:
If an employee has agreed to use a greener car relating to a green scheme a company has implemented, then a small amount of their monthly salary will be sacrificed to contribute to this, meaning you will generally pay less on national insurance overall. Although traditionally fuelled cars tend to have a more affordable asking price than electric cars, EV’s (electric vehicles) are generally cheaper to run compared to non -electric motors.
If you’re a large organisation and not necessarily based in a city, there’s a good chance the majority of your employees drive, so there will potentially be great uptake of the scheme. With the key factor of being better for the environment driving the motive (excuse the pun) to provide greener cars, it’s likely that engagement and overall retention levels of employees will increase. Working for a company that puts practices in place to make it easier for employees to be more eco-aware and reduce their carbon footprint is an attractive benefit.
Benefits for employees:
Being offered a brand-new company car can be an exciting part of a benefits package, and with most green car schemes, additional drivers can be added. This means that choosing to have an electric car can also benefit your partner or other family members, meaning the whole family can help to reduce their carbon output.
Although making a small sacrifice to your monthly salary , the long run costs of utilising a green car scheme are much more flexible and most importantly, extremely cost effective. Petrol or diesel costs will be lower (or not at all for fully electric cars) and replaced by cheaper electricity plus you won’t , generally, have to pay for things like any maintenance or labour fees if your car runs into any problems as they will usually be included in the scheme. In addition to this, zero emission cars are currently exempt from the requirement to pay Vehicle Excise Duty, meaning you don’t need to pay any road tax on a pure electric vehicle! However, this exemption is being removed from April 2025.
Tax incentives for electric cars:
Okay, so we’ve talked about the benefits for both employers and employees for having an electric company car, but what are the tax advantages of this?
Company car tax, assessed under the Benefit in Kind (BiK) rules, is reduced for cars that have electric motors or hybrid engines, significantly so for those that are fully electric or have a high electric range. This is because company car tax is dependent on the level of vehicle emissions – which is advantageous to EV models. It is also calculated based on list price, and how much the employee using the car earns (specifically which tax bracket is applicable). As a reminder, a company car is taxed at different rates depending on:
- A car’s P11D or taxable value
- How much carbon dioxide the car emits
- A car’s engine type: petrol, diesel, electric or hybrid
- The employees income tax bracket
As the overall BiK rate is partly calculated based on the amount of CO2 that the model of your car emits, those with higher rates of CO2 pollution are penalised, whereas those who have green cars benefit. Zero emission or reduced emission cars have an advantage, as the company car tax is significantly reduced.
Furthermore, for expenditure incurred on the purchase of any new and unused cars with 0g/km of CO2 emissions (or fully electric), 100% first-year allowances are available. It’s worth noting that leased cars do not qualify for this allowance though.
Similarly, a first year-capital allowance of 100% of the expenditure is the minimum allowance available for costs related to the electric-charge point equipment installation.
Things you need to be aware of
It’s worth highlighting that you will need to make sure your office is fit to cater for electric vehicles. Installing charging points at your facility is essential, and allows employees to charge their car during the day for a conveniently easy drive home.
The Government does however offer grants in order to enable companies to have charging points installed. An EV charging point grant provides funding of up to 75% towards the cost of installing charging points across the U.K.
Final thoughts – is it easier being green?
Offering a green car scheme is a way forward to be kinder to the environment and provide great benefits to staff. Whilst initial investments may be costly, the overall advantages of providing electric cars can have major tax relief benefits.
If you are thinking of offering electric cars as a benefit for your company and would like to arrange a one-to-one session with a Tax Advisor, you can get in touch with our Corporate Tax Team by emailing info@djhmittenclarke.co.uk.
