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  • Stephen Kelly

The Future of Company Cars is Electric

Drivers of electric and low-emission cars are taxed less than those with expensive, high-emission models. Employers can provide workplace charging facilities tax-free. In addition employers can meet the cost of electricity for private journeys carried out by employees in electric company cars without incurring fuel benefit charges. This article looks at how electric and low-emission cars can be a tax-efficient benefit for employees, with added Class 1A National Insurance Contributions savings (NICs).

Tax charges arise where the employer makes a company car available for an employee’s private use. The taxable amount is calculated as a percentage of the car’s list price, this percentage depends on the car’s carbon dioxide emissions and for low-emission cars the electric range. Diesel cars incur a higher percentage charge.

The company car benefits currently range from 2% for zero-emission cars to 37% for cars with CO2 emissions of 160g/km and above. A 4% supplement is applied to diesel cars who do not meet the RDE2 emissions standard and is capped to a 37% maximum charge.

Electric and low-emission cars are a tax-efficient option, especially for expensive cars when you consider being taxed as much as 37% of the list price for a polluting fossil fuel car versus only being taxed on 2% of the list price for an electric car.

Drivers whose cars have greater electric range are also rewarded as for car emissions between 1 and 50g/km the appropriate percentage also depends on the electric range of the car.

Employers must pay Class 1A National Insurance contributions (NICs) on the taxable value of a company car. For 2022/23, the Class 1A NICs percentage is 15.05%. While this is due to revert to 13.8% from 6 April 2023, the Health and Care Levy of 1.25% will apply from that date, so the employer’s cost will effectively remain at 15.05%.

As such employers will also benefit if employees have electric or low-emission cars, as the Class 1A NICs charge will be lower if the value of the taxable benefit is lower.

Where an employer provides an employee with fuel for private motoring in a company car or meets the cost of that fuel, a taxable benefit arises. HMRC does not regard electricity as a fuel and therefore there are no fuel benefit charges when an employer covers the cost of electricity for private motoring in an electric car.

The employer saves too as Class 1A NICs are payable on the fuel benefit charge. These can be up to £1,408.83 per car (based on a car with CO2 emissions of 160g/km or more).

By choosing to meet the cost of an employee's private motoring for an electric company car the employer can save Class 1 NICs and the employee will save tax. If an employer wishes to meet the cost of an employee’s private motoring, providing electricity for an electric company car will save the employee tax and the employer Class 1A NICs.

An employer may choose to install an electric charging point at the workplace to encourage employees to adopt electric cars. Employers can benefit from a 100% first-year capital allowance on the cost of workplace charging facilities.

In addition employees can use a workplace charger tax-free to charge their own electric or hybrid cars, or one in which they are a passenger.

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