Company car use accelerated by EV tax breaks

Company car use accelerated by EV tax breaks

Jul 4, 2024

Favourable tax breaks for companies giving staff electric vehicles (EVs) have caused a surge in take up of electric options, with a 76% jump in EVs since 2022

The total number of company cars reached 760,000 in 2023, up by 40,000 from the previous year, with nearly a third – 220,000 – being EVs. This figure has nearly doubled since 2022 when there were just 125,000 company EVs.

Ian McMahon, partner at UHY Hacker Young said: ‘There are major government incentives on the use of electric vehicles as company cars.

‘Employees only have to pay a tax charge on 3% of the value of an electric company car’s value per year versus up to 37% of the value of a normal car.’

There were 960,000 company vehicles issued in 2015, a number which has been steadily declining, dropping to 720,000 in 2020-21.

By 2018-19 there were 870,000 company cars on the roads, with just 1% being EVs. Now the numbers are starting to climb again, and EVs now account for almost a third of all company vehicles.

As well as beneficial tax breaks, EVs are more reliable for covering longer distances, making them more appealing to company fleet buyers. The influx of charging points being installed over the country has also influenced the rise in company use.

McMahon added: ‘The huge increase in electric company cars last year shows electric vehicles can keep growing market share if they are properly subsidised.’

However, tax charges are due to increase by 1% a year until 2028, which McMahon warned could cause the number of company vehicles to decline.

From 1 April 2025 road tax will begin to be charged on all EVs, new and exisitng. Those registered on or after 1 April 2025 will pay the lowest rate, while EVs and hybrid vehicles registered before this will pay the standard rate. In 2024 this is £190, but is subject to change from 2025. This is expected to pull in £985m in the first year of implementation then doubling to £1.59bn in 2027/28. Additionally, electric vans will be charged as regular lights good vehicles.

Charging company cars at home

HMRC has also amended guidance on the tax treatment of electric charging of company cars and vans at residential properties.

The costs of charging are now treated as a tax-free benefit, whereas in the past HMRC said that where an employer reimburses their employee for the cost of charging a company-owned, wholly electric car that is available for private use, the reimbursement was taxable as earnings.

The latest guidance is available in HMRC manual EIM23900 to reflect the tax authority’s revised interpretation regarding home charging of electric company cars, which was updated last October.

Section 239 ITEPA 2003 provides an exemption on payments and benefits provided in connection with company cars and vans. This legislative provision therefore exempts aspects such as vehicle repairs, insurance, and road tax.

HMRC previously maintained that the reimbursement of costs in relation to charging a company car or van at a residential property was not caught by this exemption.