Electric Company Vehicle Tax Considerations in 2022/23
Author: LHP Associate Rachael Ball FCCA
Updating your company car or van with an electric vehicle offers several tax benefits that can reduce your costs as well as help protect the environment. Could this year be a favourable time for your company to invest in an electric car or van with the significant tax reliefs available? This blog considers the tax implications in terms of 2022/23 fuel rates and taxable benefits.
Electric car financial benefits
An electric car qualifies for a 100% first year allowance (FYA) if purchased new prior to April 2025, meaning the cost of the new car is fully deductible in the period of purchase for tax purposes. There’s a government grant of £2.5k you can deduct from the price of an electric car costing less than £35k. This covers around half of all electric models on the market.
Your company can claim a 100% first year allowance for the cost of buying and installing an electric vehicle charging point at your company premises and a company driver can also choose to apply for a government grant to fit an electric charge point at home. For limited companies, electric vehicles may qualify for tax relief at 130% if purchased new before 1 April 2023 under the super-deduction rules.
Electric car fuel rates
Company car drivers will be taxed on use of the car for personal journeys (2% in 2022 and then stays frozen until April 2025). The company car can earn the driver 4 pence per mile for business trips where the driver paid for the electricity to charge it, 3.3 pence per mile when charging from home. Where the company pays for the electric to charge the vehicle, there’s no ‘benefit in kind’ tax for the driver on fuel use for private journeys.
Commercial vehicles like vans qualify for the Annual Investment Allowance (AIA), whatever the C02 emissions. This equates to a 100% deduction on purchases (up to £1m a year) before 31 December 2021. From January 2022, the AIA cap reduced to £200k yearly with transition rules. AIA is available to unincorporated businesses as well as companies. Drivers of electric vans have no tax charged on them for use of the vehicle for personal journeys.
Electric Car 2022/23 taxable benefits
Taxable benefits range from 2% for cars with zero emissions and cars with CO2 in 1-50g/km band with electric charge ranges of 130+ miles to 37% for cars giving out CO2 emissions of 160g/km+. Diesel cars that don’t meet RDE standards accrue 37% when emissions are 145g/km+.
While a tax-free electric car is not a full taxable benefit in 2022/23 as in 2020/21, the charge is still super low at 2% of list price. An electric company car costing £30k is taxed at £600, costing £120 for basic rate taxpayers or for high rate payers £240 in tax for the year. A car costing £50k would receive the taxable amount of £1k meaning the higher rate taxpayer will pay £400 tax for the year. The same result with a hybrid with an electric range of 130 miles (1-50g/km band). Percentages for 2022/23 remain unchanged for 2023/24 and 2024/25 so the electric and low CO2 cars remain tax efficient on benefits for the coming few years.
Electric Van 2022/23 taxable benefits
In April 2021 the taxable benefit for having private use of a zero-emission van was reduced to zero- thus taxed at 0%. In 2020-21 the electric van used to be taxed at 80% of the benefit for a normal van (£3,490 – so the charge was £2,792). No taxable benefit applies whatsoever if the van is only used for business journeys and usual commuting regardless of fuel type. So, no benefit in kind charge since April 2021 for electric vans, no matter what the use.
There’s a lot to think about when considering your next business car (or van) purchase, so to avoid large tax bills through not thoroughly researching your position. Speak to our team of tax specialists about the most tax efficient vehicle for your business on let’s Talk.