With the introduction of fully electric cars, HMRC have recently been taking a more aggressive stance on the tax position of benefits and reimbursed fuel costs.
Prior to 6 April 2015, fully electric company cars did not suffer a benefit in kind charge and the employee could be reimbursed for business mileage at a rate of 12 pence per mile as though they were petrol cars. This was often a very tax efficient way of providing employees with a company car as the company could also take a full deduction for the cost of the car using first year allowances.
Then, from 6 April 2015, a benefit in kind charge of 5% was implemented on electric cars, which has been increasing each year, but the reimbursement for business mileage has remained consistent.
Now, from 6 April 2018, electric cars will face a benefit in kind charge of 13% on the list price of the car, increasing to 16% from 6 April 2019. This can affect the employees personal tax liability dramatically, potentially taking them into a higher tax band.
From 1 September 2018, the reimbursement for business mileage for electric cars has also been restricted to 4 pence per mile to account for the cost of charging the car from home. If the company is reimbursing an employee for business use of their own private car, you are able to use the general 45 pence per mile for the first 10,000 miles and 25 pence on anything in excess of this. We expect HMRC will also review these rates for electric cars but this has not yet been released.
Despite these changes, if you are looking to purchase a company car, an electric car should still be the most tax beneficial option. They currently still attract the most capital allowances for the corporation tax purposes and also suffer the lowest benefit in kind rates.
Please get in touch with the tax specialists at DRG Chartered Accountants if you are looking to provide company cars to your staff in the most tax efficient way.
DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.
