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Company Car Benefits & Tax

What help is available for fleets?

An electric car is usually more expensive to lease than an equivalent petrol or diesel model, but there are several tax incentives to compensate for this.

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UNLIKE with a petrol or diesel model, businesses can deduct the full cost of buying or leasing an electric vehicle from their pre-tax profits, resulting in lower tax bills.

EV cars also qualify for zero-rate road tax – Vehicle Excise Duty (VED) and are exempt from the levy (currently £390) that’s applied to vehicles with a list price of £40,000 or more. VED exemptions will be withdrawn in April 2025 including vehicles that are already on the road.

Recurring tax costs are lower too. Employers pay class 1A national insurance contributions (NICs) for providing workplace perks. These are paid at a flat 13.8% of the taxable value, which means it’s just as heavily CO2-weighted as drivers’ BIK payments.

How do you go about formulating a fleet EV policy?

An electric car is usually more expensive to lease than an equivalent petrol or diesel model, but there are several tax incentives to compensate for this.

Unlike with a petrol or diesel model, businesses can deduct the full cost of buying or leasing an electric vehicle from their pre-tax profits, resulting in lower tax bills.

EV cars also qualify for zero-rate road tax – Vehicle Excise Duty (VED) and are exempt from the levy (currently £390) that’s applied to vehicles with a list price of £40,000 or more. VED exemptions will be withdrawn in April 2025 including vehicles that are already on the road.

Recurring tax costs are lower too. Employers pay class 1A national insurance contributions (NICs) for providing workplace perks. These are paid at a flat 13.8% of the taxable value, which means it’s just as heavily CO2-weighted as drivers’ BIK payments.

How do you go about formulating a fleet EV policy?

The Association of Fleet Professionals (AFP) has a Best Practice Fleet Policy Guide for EVs, which shares a number of considerations when introducing pure electric and plug-in hybrids into a company car fleet.

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If implemented correctly the introduction of plug – in vehicles should provide both employee and employer with significant tax savings, improve the environment, and generate other cost savings such as fuel and the avoidance of penalties in emission-based charging zones.

Obviously, EVs have to be fit for purpose in terms of the driver and the fleet requirements. This is both vehicle type and specification, as well as correct for the type of drive cycles the car will be used for. Typical daily mileage should be within the electric range of an EV to ensure there is only an occasional need to charge during the day.

Regarding Plug-in Hybrids (PHEVs), the majority of the daily mileage should be achieved in EV mode with the Internal Combustion Engine (ICE) only being used for occasional longer journeys.

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You really need to weigh up how beneficial a PHEV is as they can be expensive to run – particularly if they charge off the engine – more so than a conventional ICE engine.

Plug-in vehicles are typically higher cost than petrol or diesel and will therefore normally attract higher rental or lease rates. But if you factor in National Insurance, fuel costs, service, maintenance and repair, then PHEVs can be cheaper over the life of the vehicle. AFP recommends using Whole Life Cost as the selection methodology for any mixed fuel fleet policy.

Employees using a PHEV or full EV should have a dedicated charger at home if they have the potential to fit one in. This will allow maximum use of electric driving for a PHEV and ensure range anxiety is minimised for a pure EV.

Employers should try to ensure that their workforce actually charges the PHEV, there’s a body of evidence to suggest that many don’t actually bother and rely on the ICE engine solely.

Home chargers are both safe, convenient to use, and will charge a car much faster than a standard three pin socket – maybe seven hours versus 17 hours.

As well as taking a long time, using a three-pin has the potential to be hazardous, particularly if you use extension leads to reach the car outside. Always refer to the vehicle manufacturer’s recommendations regarding using a three-pin socket.

Employees who cannot fit a home charger at their property may need some sort of assistance in finding ways to ensure they can charge the vehicle effectively.

A company may also have to decide whether it can provide a charge point for the employee at home, or whether the employee will be expected to pay for it. BIK tax will be chargeable for the employee if the company pays for the charge unit. Consider also what happens if the employee moves home.

As a further option, it is also possible to include the charge point costs within the lease costs or you could allow the company to pay for the charge point and then deduct the cost over a 6-12 month period, directly from the employee’s salary.

Companies should also consider their fuel policy and mileage reimbursement systems when introducing plug-in vehicles. It can be quite complex to deal with multiple fuel types and also to identify the amount of electricity used if employees are recharging their vehicles at home, work or on the public charging networks.

Costs at public networks vary considerably from reasonable to almost on a par with petrol or diesel for a fill-up. It’s a good idea to use HMRC’s AFR and AER rates for reclaiming business mileage, a simple and straightforward reimbursement solution.

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