In this episode we will discuss the tax benefits available for electric vehicles and the distinction between the treatment for cars and vans. Electric vehicles are the future so if you are thinking of making a change, tune in.


Natasha 00:25

Hello and welcome to Tax Able. Today’s episode is called Go Green for Greta Thunberg, and that’s because we’re going to be discussing the tax benefits associated with electric vehicles. There is a big push towards opting for a greener life.  Veganuary to reduce meat consumption, sugar tax, the growing popularity of non-dairy milks and swapping fossil fuels for electric power travel.


Natasha 00:49

You’re probably aware that the Government wants us to switch to electric vehicles. What you may not know is that there are some great tax incentives to entice you to switch. The items we will discuss today are; business cars and vans, tax benefits and charges of either options. We are specifically going to be looking at Benefits in Kind (BiK), VAT and Capital Allowances and any other benefits available for fully electric vehicles.


Natasha 01:14

So let’s first look at Benefit in Kind and I call these BiKs. Each year, employees and directors have to report and pay tax on certain benefits.The key distinction here is if you are self-employed you cannot be the employee and also the employer. So this section is not applicable to you, but it may apply to your staff (if you have any).


Natasha 01:34

A BiK is a non-cash benefit provided by your employer, but as it has a monetary value is treated as taxable income. Typically, BiKs relate to company cars, private medical insurance, loans or accommodation. By this I do not mean overnight hotel stays for business trips, rather flats or houses provided for longer periods of time.


Natasha 01:57

You are taxed through PAYE, and this means that tax is taken out of your salary by your employer and report all your BiKs through a form called a P11D. You do not pay National Insurance. Instead, your employer will pay this on your behalf.


Natasha 02:11

Today we’re going to look at company cars and vans in detail. The two types of vehicles are treated very differently to buckle in as it is a tad complicated.  Cars, in the past, cars were seen as a great benefit, but over time, the Government is squeezing every penny possible. You will have gathered by now that a car will trigger a BiK but how do we calculate the tax?


Natasha 02:32

Well, it depends on the car’s CO2 emissions and its list price. The rates range from 1% to 37%. Let’s first look at an example. We’ve got a Volkswagen Golf. The CO2 emissions are 124 g/km and you’re not expected to know this. You can find the rates online by searching a registration plate or it’s listed on the manufacturer’s website. The BiK rate for this type of car is 29% and if the list price is £25,000 you would take the £25,000 x 29% to give you £7,250.


Natasha 03:11

This is the amount that you’re going to be taxed on and your rate of tax is dependent on your level of income, so you’ll be taxed at either 20%, 40% or 45% of that £7,250. Remember, this is taxed on you personally through your salary. Now let’s compare this with the fully electric version. So if we use our example from earlier, we’ve got the Volkswagen Golf, the electric version. The CO2 emissions are 0 g/km, the BiK rate for 21/22 tax year is 1% of the list price and as you can see, 1% is preferable to 29% compared to the petrol version. Please do be aware though that the BiK rate for electric cars is set to go from 1% to 2% from the next tax year and that rate will stay at 2% until 2025.


Natasha 04:05

Now a call out to my employers. Be careful if you are buying a new electric car, the first registration must be to your company. If it’s preregistered and by this, it can even be a forecourt or a demo model, it may be classed as a second hand car and the tax benefits are not so great, so do not miss out on a technicality.


Natasha 04:24

Some people are worried about fully electric cars and specifically their mileage range, so many manufacturers offer hybrids. Well, the rates for hybrids are different depending on their electric mileage range. If we use our example from earlier, the hybrid version has an electric mileage range of 39 miles. The BiK rate is then 12% of the list price. 12% is better than 29% for the petrol version, but still a lot higher than the 1% for the electric version. Hybrids have lower rates, but they’re still a hefty amount to be taxed on and this will reduce the amount of salary you will receive


Natasha 05:04

That’s cars covered, let’s look at vans and what is a van? Well, there is an official HMRC classification and they say a vehicle primarily constructed for the conveyance of goods and it has a gross vehicle weight fully laden, not exceeding 3500 kg. This definition covers panel vans with two or three abreast seating, chassis cab fitted out with conversions, two seat commercial SUVs and pickup trucks. The easiest thing to do here is to double check the Van’s V5C registration document for its European classification. If it says N1 or N2 it’s probably a van.  If it reads M1 or M2 then it’s going to be taxed as a car and that means that you’ll fall into the emission based rates we discussed earlier.


Natasha 05:52

Vans are simpler than cars as it’s dependent on how the van is used by the business. If it’s solely used for work purposes, no BiKs. This also includes insignificant private use, and by this I mean it can include small trips such as making a detour tour of the shops for a coffee on your way to work or visiting the dentist during business hours. HMRC does not view these trips as triggering a BiK compared to cars, which automatically trigger BiKs as they are often used for journeys other than your commute to work.


Natasha 06:23

Once you get into the realms of using your van for beyond work and insignificant private use, then BiKs kick in and you have to cough up. The rate is £3,600 for the coming tax year and it’s a flat rate. The flat rate is the same for all vans and pickups, regardless of their size. But if your van is fully electric, no BiK at all.


Natasha 06:44

So that’s BiKs covered but how are you going to finance the purchase? There are three ways to buy a vehicle. You can buy it outright under hire purchase or lease it through an operating lease. Now if you buy it outright or via hire purchase (at the end of hire purchase, you usually own it at the end and have to pay for something called a balloon payment). As you own it at the end, it’s treated the same for tax as if you bought it outright.


Natasha 07:09

We will look at these two options first and later go onto the operating lease. In your accounts the car or van will be shown as an asset on your balance sheet as you own it. For cars, the VAT is not reclaimable on any type of new or used car, even electric cars, as it’s specifically blocked, unless your business activity is one of a car dealership or a taxi firm, so the car would be shown as a stock item instead. For vans, the VAT is reclaimable as they’re a commercial vehicle and you use them exclusively in your business. To reclaim the VAT on a used van, the invoice must specifically list the amount of VAT as some dealers use a special VAT scheme to keep an eye out for this.


Natasha 07:52

As you own the assets, you’re eligible to claim Capital Allowances and if you do not know what I mean by Capital Allowances, make sure that you tune in and listen to “Buy the Whole Kit and Caboodle” episode as we look at these in detail. Now, for cars, if the CO2 emissions are o g/km the full cost is deductible (i.e. 100% deduction) If the grams per kilometre are 1-50 then it goes in the main pool and you only receive a deduction of 18% per annum. If it is a high emission car, and by this we mean over 50 grams/km, they go in the special rate pool and you receive 6% deduction per annum.


Natasha 08:28

But what about Capital Allowances for vans? Well, the full cost is eligible for deduction and if it is a new or unused van, it also may be eligible for the super deduction, which means you get an extra 30%. So keep an eye out for this. Now let’s circle back to operating leases and under an operating lease, you do not own the vehicle as you’re essentially just renting it and you may have something included called a monthly maintenance pack. In your accounts, as you do not own the vehicle, the monthly rental costs are treated as a deductible expense


Natasha 09:03

You can reclaim 50% of the VAT charged on the monthly payments and up to 100% of the monthly maintenance amount for VAT on bands. There is no limitation when it comes to reclaiming the monthly payment. You can reclaim 100% of the initial rental, monthly rentals and even maintenance charges. As you do not own the vehicle, you’re not eligible for Capital Allowances, so we do not need to cover this at all.


Natasha 09:29

Some other items for you to consider are if your employer pays for fuel and you use the vehicle for personal journeys, you’ll have to pay tax on this separately and this will also be reported in your P11D. To my employers, to encourage the use of electric and hybrid vehicles, there is an exemption available for workplace charging. The exemption covers the cost of the electricity providing the facility and any connected services, but do be aware that the exemption does not cover the reimbursement of an employee’s personal expenditure away from the company premises, so you can’t include an expense claim if the vehicle is charged at home or at a service station. Other incentives include free parking in certain areas for electric vehicles and no congestion charge.


Natasha 10:14

If you do own your own company and you’re looking to buy a fully electric car, then personally you’ll pay minimal tax because the benefit in kind is 1% or 2% of the list price. The company will buy the vehicle rather than you purchasing it from your taxed income and then the company will receive a full tax write off through capital allowances. So if you are thinking of making a switch or buying a new car, this is definitely something for you to consider.


Natasha 10:40

Now we’ve come to the end of today’s episode and the points you should take away from today are fully electric cars have the highest tax incentives. Vans are considered business assets and do not have many rules surrounding their use and the recovery of payments. And lastly, please make sure you consider the implications of how you’re going to fund your purchase. If you’ve enjoyed today’s episode, please make sure you click subscribe to listen to the episodes as they’re released.


*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please visit my disclaimers page. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


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