FUNDAMENTALS OF \ EV TAXATION
What financial support is available for electric fleets?
in association with
CAPITAL ALLOWANCES AND LEASE RENTAL RESTRICTION
Capital allowances for low-emission vehicles were changed in April 2021, and apply for four years. The 100% First-Year Allowance now only applies to battery-electric vehicles, enabling businesses to write off 100% of the purchase cost against pre-tax profits. This falls to 18% of the vehicle value for models with 1-50g/km CO2 emissions (mostly plug-in hybrids) and 6% for anything emitting 51g/km or more.
The Lease Rental Restriction applies if vehicles are leased or rented for 45 days or more, and the CO2 threshold was tightened for contracts beginning from April 2021. Businesses can offset the full cost of rental or lease payments against pre-tax profits if vehicles emit 49g/km or less. For vehicles emitting 50g/km or more, that rate is reduced to 85%.
INCENTIVES FOR NEW CARS
Since 2012, the Office for Zero Emission Vehicles (OZEV) has provided grant funding to offset some of the higher purchase costs for electric vehicles. This helps reduce the finance or procurement costs for fleet operators but does not affect company car tax liability – the taxable value is calculated without the grant applied.
Rates and eligibility have tightened since the Plug-in Car Grant was introduced. Since March 2021, this provides up to 35% of purchasing a new vehicle (including VAT and delivery fees), to a maximum of £2,500. Eligible vehicles must have a recommended retail price of less than £35,000, CO2 emissions of less than 50g/km and travel at least 70 miles with no tailpipe emissions. At the time of writing, no plug-in hybrids meet those criteria.
VEHICLE EXCISE DUTY
The Vehicle Excise Duty (VED) system for cars was overhauled in April 2017, introducing a CO2-weighted First Year Rate for new vehicles, and a flat rate for subsequent years. Battery-electric and hydrogen fuel cell vehicles, with 0g/km tailpipe CO2 emissions, qualify for a zero rate in both cases. Rates for hybrids are the same as combustion engine vehicles, but with a £10 discount.
All vehicles with a £40,000 list price attract a £335 annual supplement, regardless of CO2 emissions, for their first five years on the road. The list price includes non-standard options, delivery and inspection costs and VAT, but excludes the Plug-in Car Grant, registration fee and First Year Rate. Rates are outlined in the following table:
COMPANY CAR TAX
New company car tax bands came into force in April 2020, accommodating higher CO2 figures produced under the tougher new WLTP fuel economy standard, and renewing incentives for vehicles emitting less than 50g/km. Rates for the 2022/23 tax year have been frozen until 2024/25.
Fleet and driver tax liability is based on a taxable value, calculated using the vehicle’s list (P11d) price and weighted by its CO2 emissions, which offers sizeable incentives for low-emitting vehicles.
For example, an electric car (0g/km CO2) and equivalent petrol (120g/km CO2) with list prices of £30,000 would be calculated as follows:
Electric: £30,000 (P11d) x 0.01 (Benefit-in-Kind 2021/22) = £300 (taxable value) Petrol: £30,000 (P11d) x 0.28 (Benefit-in-Kind 2021/22) = £8,400 (taxable value)
Benefit-in-Kind for drivers is calculated based on their income tax rate (20% or 40%), while businesses pay Class 1A National Insurance Contributions (NICs) at a flat rate of 13.8%.
Continuing the examples above:
Annual Benefit-in-Kind: 20% taxpayer: Electric: £300 (taxable value) x 0.20 (tax rate) = £60 (£5 per month) Petrol: £8,400 (taxable value) x 0.20 (tax rate) = £1,680 (£140 per month)
Annual Benefit-in-Kind: 40% taxpayer: Electric: £300 (taxable value) x 0.40 (tax rate) = £120 (£10 per month) Petrol: £8,400 (taxable value) x 0.40 (tax rate) = £3,360 (£280 per month)
Annual Class 1A NICs: Electric: £300 (taxable value) x 0.138 (NIC rate) = £41.40 Petrol: £8,400 (taxable value) x 0.138 (NIC rate) = £1,159.20
Emergence of clean-air zones in UK cities, low emissions requirements: the world is changing and Free2Move is here to simplify and guarantee your mobility.
At Free2Move, we have the knowledge and the tools to help you along each step of your transition to an electric fleet.
Being part of Stellantis – the largest car manufacturer in Europe, enables us to provide new mobility services to meet your travel needs. Our product line-ups are evolving rapidly towards electrification in line with our customers’ expectations and regulatory changes. Our business partners benefit from a wide range of solutions and services and have the possibility to develop their activity and be at the forefront of future mobility.
At Free2Move, we are committed to simplify your mobility and to help you plan your transition to an electric fleet with confidence so it is smooth, progressive, and effective.
Contact us today to start your transition.
Shane Coomber Commercial Director Free2Move Lease E: firstname.lastname@example.org M: 0345 313 3815