Electric Vehicle Tax Savings: 2024/25 Benefits and Beyond

Electric Vehicles (EVs) skyrocket in popularity as sustainable transport choices

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Electric vehicles are becoming an increasingly popular choice for individuals and companies as we strive to achieve net zero targets set by the UK Government. The Government is committed to accelerating the move to low, or zero-emission vehicles and has taken measures to incentivise using an electric vehicle. Most notably, the company car tax rate, or benefit-in-kind rate, will be capped at 2% until at least the end of the 2024/25 tax year, where it will rise by a further one per cent for the 2025/26 tax year. To offer some perspective on the savings that can be made, we must first understand that the car’s CO2 emissions determine the benefit in kind tax rate, with electric vehicles falling into the lowest benefit-in-kind tax rate.

Untangling Benefit in Kind Rates: Comparing Employee A and B’s Scenarios

Employee A: Petrol Power – Higher Benefit in Kind Burden

This employee has opted for a new petrol vehicle for the 2024/25 tax year. The vehicle of choice emits 92g/km CO2 and has a list price of £25,000 (inclusive of any add-ons). Based on the current rates, vehicles that emit 92g/km CO2 attract a benefit in kind charge of 23%.

The benefit in kind figure for the employee is calculated with £25,000 x 23% = £5,750. The employee will then be expected to pay either 20/40/45% tax on £5,750.

Employee B: Electric Advantage – Minimal Benefit in Kind Impact

This employee will receive an electric vehicle for the 2024/25 tax year. The vehicle is fully electric; therefore, its emissions are 0g/km CO2 and has a list price of £39,000 (inclusive of any add-ons). The current rate for vehicles with no emissions is 2%.

The benefit-in-kind figure for the employee is calculated with £39,000 x 2% = £780. The employee will pay either 20/40/45% tax on £780.

Electric Vehicle Tax Savings Highlight

Employee B enjoys an 86% reduction in benefit in kind liability compared to Employee A.

There is massive savings potential in opting for an electric vehicle, but what are some of the other tax nuances we must be aware of with electric vehicles? Here are some of the common questions our clients ask:

Can I charge my electric vehicle at work without any tax implications?

What if I would like an electric vehicle charging point installed at my home address?

Can I reclaim mileage from business miles as technically electricity isn’t a ‘fuel’?

We urge you to join our seminar on 25 January where we will provide you with the knowledge and tools to navigate the rules around all vehicle use.

You’ll gain a deep understanding of:

  • Electric Vehicle Tax Considerations: Unravel the intricate tax implications of transitioning to an electric vehicle fleet. Discover the financial benefits, incentives, and tax considerations that can significantly impact your company’s bottom line.
  • Optimising Vehicle Use Policies: Implement comprehensive vehicle use policies that promote responsible employee behaviour, minimise risk, and enhance compliance with regulations.
  • Defining Acceptable Vehicle Usage: Establish clear guidelines for company car and personal vehicle usage to prevent misuse and maintain a culture of responsible driving habits.
  • Staying Ahead of Mileage Rate Changes: Keep pace with the evolving mileage rates set by HMRC and ensure your company’s reimbursement practices remain compliant and cost-effective.

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Michael Risi

Written by Michael Risi

Michael started his career by joining HMRC in 2014. During his time there, he worked as an integral part of a Debt Recovery team, with particular focus on PAYE. He developed into a coaching and mentoring role, delivering training sessions to new and existing staff through a transitional period.

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