Tax benefits of electric vehicles

As electric cars become ever more accessible and the government offering several tax advantages for low emission vehicles, their popularity continues to grow. There are income tax and VAT consequences to consider.

From an income tax point of view the main element of the calculation applies a percentage to the Co2 emissions of the vehicle.

From April 2020 electric-only cars were subject to a multiple of 0%, but this is increasing. For cars registered before 6 April 2020 the 0% increases to 1% for 2021-22 and to 2% for 2022-23.

For cars registered after 6 April 2020, the 0% increase to 1% for 2021-22 and to 2% for 2022-23 HMRC has published a table for the percentage used in tax benefits depending on the Co2 of the vehicle.

Omagh based accountant Seamus McCaffrey

The taxable benefit for having the private use of a zero-emission van was reduced to zero in April 2021. In 2020-21 the electric van was taxed at 80% of the benefit of a normal van.

There is no taxable benefit at all if the van is only used for business journeys and ordinary commuting, regardless of the type of fuel.

From April 2021, a zero-emission van is taxed at 0% of the benefit charge, therefore there is no benefit in kind charge for an electric van regardless of use.

The Capital Allowances rules are clear. For expenditure incurred before 1 April 2021, a 100% first year allowance was available for a new car which is an electrically propelled car, or which has lower Co2 emissions.

A car has low C02 emissions, where the emissions do not exceed 50g/km. For expenditure incurred on or after 1 April 2021, the first year Capital Allowance is restricted to new electrically propelled and zero emission cars.

Cars that do not qualify for a first year Capital Allowance are allocated to a pool by reference to an emissions threshold. The emissions threshold is currently 50g/km for expenditure incurred on after 1 April 2021.

Expenditure on a car within the emissions threshold is allocated to the main rate pool, 18% writing down allowance each year; expenditure on a car exceeding the threshold is allocated to a special rate pool, 6% writing down allowance.

Where the business installs new charging points for electric vehicles up to 31 March 2023, it can claim 100% for these costs.

In relation to VAT, HMRC has recently published a Revenue & Customs Brief 1/22 that sets out HMRC’s intention to review issues arising for business use.

There are different VAT rates applied to the supply of electricity used for charging vehicles depending on the location of the charging point.

Where the car is charged at home, the supply will normally be subject to the reduced rate of 5%. When charging an electric vehicle at the workplace or public place, this will normally be standard rated.

Once HMRC completes their review, there will be further updates published.

For further information, telephone: (028) 8224 1515.