Recent years have seen a remarkable increase in the popularity of electric cars. As at December 2017 more than 132,000 ‘plug-in’ cars (see below) had been registered in the UK, up from 3,500 in 2013.
There are broadly two types of car currently available in the UK which have some form of electric propulsion:
- ‘Pure-electric’ cars – ‘plug-in’ cars with electric propulsion systems only and no petrol or diesel engine.
- Hybrid cars – cars which combine a conventional petrol / diesel engine with an electric propulsion system. These can be sub-divided into two types:
- ‘Plug-in’ hybrids that can be recharged by plugging into an external source of electricity.
- ‘Conventional’ hybrids that cannot be recharged by plugging into an external electricity source - instead the electric battery is recharged by the engine or through regenerative braking.
This article refers to all of the above collectively as electric cars.
Whether a taxable benefit arises in connection with an electric car and how this is calculated depends on whether it is a company car or is personally owned by the employee. This is discussed further below.
This article does not consider Vehicle Excise Duty, electric vans or the ‘plug-in grants’ which can reduce the cost of electric vehicles. It also does not specifically cover the capital allowances available on electric cars, but more information on this can be found in an ATT Technical Article here.
Electric company cars
If an employer provides an electric car to their employee, a taxable benefit in kind will arise. The value of this is calculated in the same way as for other company cars, with the following differences for Pure-electric cars:
- The lower appropriate percentages for zero emissions vehicles will apply.
- The list price must include the cost of the battery, even if this is leased separately. HMRC’s position is that as the car cannot move without a battery it is integral to the car.
The changes to the taxation of employee benefits from 6 April 2017 which largely removed the income tax and employer NIC advantages of optional remuneration arrangements such as salary sacrifice (see here) do not apply to ultra-low emissions vehicles. These are defined as vehicles which emit 75g/km CO2 or less in 2017-18 (reducing to 50g/km or less from April 2018), which will include all Pure-electric cars and some Plug-in and Conventional hybrids. Employers may therefore still find it attractive to provide such ultra-low emission electric cars under salary sacrifice arrangements.
Tax law does not treat electricity as a fuel. As a result, for Pure-electric cars:
- The fuel benefit charge in s149 ITEPA 2003 does not apply to any electricity supplied by an employer - no benefit in kind arises if an employer pays to charge a Pure-electric company car (e.g. the car is charged at work), regardless of the level of private mileage.
- Advisory Fuel Rates (AFRs) cannot be used to reimburse employees for the cost of electricity paid for personally but used for business travel.
By contrast, Plug-in and Conventional hybrids are subject to:
- normal fuel benefit rules and
- the normal application of diesel / petrol AFRs - both in relation to an employer’s reimbursement for business travel where the cost of fuel was incurred personally and in relation to an employee’s repayment to an employer for private travel where the cost of fuel was borne by the employer.
The lack of AFRs for Pure-electric company cars makes the situation for reimbursing employees for business mileage more complicated. Where an employee charges a Pure-electric company car:
If their employer reimburses them for the cost of the electricity, the tax treatment depends on the use of the car:
- Business use only – the s289A ITEPA 2003 exemption for paid or reimbursed expenses will exempt the amount received.
- Personal or mixed use - the reimbursement is taxable as earnings, with the employee entitled to a deduction for the cost of business miles travelled.
If their employer does not reimburse them, they are entitled to a deduction under s337/s338 ITEPA 2003 for the actual electricity cost of business miles travelled.
This raises the practical difficulty of identifying the cost of the electricity used during business miles travelled. This may be more straightforward where a commercial charging point is used, but could be difficult to establish where a company car is charged at home.
Whilst excluding electricity from the definition of fuel can cause administrative problems regarding the reimbursement of business mileage, there are some benefits. In particular, s149(4) ITEPA 2003 extends the exclusion from the car fuel charge to any ‘facility or means for supplying electrical energy’. This means that an employer can, for example, pay for the following without a taxable benefit arising:
- A vehicle charging point to be installed at the employee’s home to charge the company car.
- A charge card to allow individuals access to commercial or local authority charging points.
Personally owned electric cars
If an employee uses their own electric car for business purposes, Approved Mileage Allowance Payments (AMAPs) apply in the same way as for petrol or diesel cars:
- Any reimbursement by the employer for business mileage is tax and NIC free provided it is no higher than the AMAP rates.
- Reimbursements in excess of the AMAP rates are taxable and must be reported to HMRC.
- If the employer reimburses at a rate lower than the AMAP rates, the employee can claim Mileage Allowance Relief.
An employee may receive a taxable benefit in connection with their personal electric car if their employer:
- Pays for a vehicle charging point to be installed at the employee’s home.
- Provides a charge card to allow access to commercial or local authority vehicle charging points.
- Pays to lease a battery for the employee’s car.
- (Up to 5 April 2018 only) provides electricity to charge the employee’s car (e.g. allows them to charge it at work).
In each case, the taxable benefit will be calculated in the usual way and based on the cost to the employer.
It was announced at the Autumn Budget 2017 that, from 6 April 2018, there will be no benefit in kind charge on electricity that employers provide to charge personally owned electric vehicles. The intention is for this exemption to be included in the next Finance Bill which will be announced and published in the autumn of 2018. As noted in the ATT’s press release of 16 January 2018 (see here) the delay in legislating for this exemption puts employers and employees in an uncertain position as the exemption will come into force before any details as to exclusions or exceptions are available.
 See https://www.gov.uk/expenses-and-benefits-company-cars for more information on the taxation of company cars.
 See https://www.gov.uk/government/publications/advisory-fuel-rates for more details on AFRs.
 For cars this is currently 45p per mile for the first 10,000 business miles in a tax year, and 25p per business mile thereafter.