Could an EV company car scheme benefit your business?

Would an electric vehicle company car scheme benefit your business in 2023? It might help you attract and retain talent is perhaps it is worth considering. But, tax-wise, how does it work? We’ll consider that.

EVs, are not currently subject to road tax, although that is changing. In the recent Autumn Statement, Jeremy Hunt announced that road tax would start to be levied on EVs from 2025. Nonetheless, EV s as company cars still offer significant tax advantages and for that reason a number of our clients have been looking at them.

The taxable benefit value isn’t the only consideration if you are thinking about switching to electric vehicles. Other factors include - the charging infrastructure, provision of electricity, expenses policies, alignment with your green agenda as well as HMRC compliance. 

But the favourable tax treatment of EVs is probably the main driver for most businesses so does that benefit both parties, employers and employees? It’s a question I put to tax specialist, Chris Thomas: 

Chris Thomas: “So, I think the key point really is that this is really quite a tax efficient means of providing a benefit to employees and one that I think also has wider benefits as well, potentially, in that it’s a benefit that is very much in sync with the whole kind of ESG agenda that we're seeing at the moment and, hopefully, something that might be a differentiator and help employers to attract and retain people in what we know, is quite a difficult market.”

Joe Glavina: “Is it something that, from a tax angle benefits, potentially, both sides, both employers and employees?”

Chris Thomas: “Yes, absolutely, it can benefit both employer and employees. So, the way that this will work, just to briefly run through sort of the mechanics of it, it's effectively a form of salary sacrifice. So what will happen is that the employer will hire some electric cars from a supplier, and then it will give the use of those cars to any employees who want to sign up, and what will happen is that they will enter into an agreement with the employer to give up a chunk of their regular salary, and receive the benefit this car instead. Where the benefit comes in is that instead of their salary being fully taxable, fully NIC-able, as it as it usually would be, they're replacing that with the use of a car which is taxed at a very low rate at the moment, much lower than a normal non-electric car would be. So, I think, currently, we're talking about 2% of the value, really quite a low charge. So, that's the kind of the benefit to the to the employee plus, of course, the convenience of having, a car provided and all the servicing and such taken care of for them. The benefit from the employer’s perspective is that the employer NICs which they're saving on that chunk of salary which the employee has given up. So, although. obviously, electric cars are expensive, and everyone knows that, this is a way of making available with a significant saving because of the tax advantages.”

Joe Glavina: “Is the system set up in a sufficiently tax-effective way to incentivise staff?” 

Chris Thomas: “I think it is. There is definitely a significant tax advantage there. The rates are, I think, forecast to increase slightly up to about 5% by 2027 so there is, perhaps, a slight erosion of the benefit going forward, but still, this is a pretty attractive benefit. It may change in the longer term when electric cars go more mainstream but I think for the foreseeable future it is quite attractive. Obviously, it won't suit everybody, it's not going to be much used to employees who live a flat, for example, and I do think there's more the government could do around the charging infrastructure and making that more tax efficient, potentially, around home charging and such but, broadly speaking, this is a pretty good scheme to be part of. What I would say is that if you are thinking about doing this, if you are thinking about implementing something along these lines, it is just worth getting properly checked out. These things obviously tend to be offered on terms that preferential to the supplier so it could do with being looked over from that perspective, but also just to make sure that you're properly implementing the salary sacrifice, that the employee communications cover off everything they need to in terms of potential impacts on the employee which salary sacrifice can have, things like benefit entitlements, etcetera, and also that you’ve thought about what's going to happen with regard to early cancellation charges, for example, and what carve outs are there to that if employees leave or they get dismissed, or they go on long term sick, those kinds of things. It does just need thinking about, well, what's going to happen in that situation to avoid unexpected and unpleasant shocks which then are likely to fall back onto the employer.”

In his Autumn Statement the Chancellor, Jeremy Hunt, announced that road tax would start to be levied on EVs from 2025 and that might be something you want to factor in if you are considering offering EVs to your staff. It is not yet clear how much electric vehicle users will have to pay but Hunt has said that company car tax rates will remain lower for electric vehicles than traditionally fuelled vehicles, but will increase by one percentage point for three years from 2025. The rules around that are quite complicated but there is a useful article on ITV’s website explaining this in more detail if you are interested. We have put a link to it in the transcript of this programme.

LINKS
- Link to ITV article on electric cars