Electric cars are becoming more mainstream, and you’re likely not alone in wondering whether an electric car is right for you. As the technology supporting electric cars and batteries continue to improve, drawbacks such as high cost, limited range, performance issues, long charge time, and a dearth of charging stations are fading away
There are now many reasons why people are considering electric cars. As well as the obvious environmental issues, electric cars can be cheaper to run and have certain tax benefits. Recently released draft HM Revenue and Customs guidance sheds more light on the tax treatment when an employee charges their own electric car at work, but what about the treatment of business mileage payments relating to electric cars?
If an employer provides electricity to charge a company car, then no benefit in kind charge will arise regardless of the level of private mileage or where the car is charged. This is because tax law does not treat electricity as a “fuel”, and therefore the usual fuel benefit charge for company cars (s149 ITEPA 2003) cannot apply. It should, however, be noted that a fuel benefit charge can still arise in respect of diesel or petrol provided for a hybrid company car.
The situation is more complicated when it comes to personally owned electric cars. Until 5 April 2018, if an employer provided electricity to charge an employee’s personal car then a taxable benefit in kind would arise. However, it was announced at the Autumn Budget 2017 that, from 6 April 2018, a new exemption would apply. This exemption has not yet been legislated (it is expected to be included in Finance Bill 2018-19 later this year), but HMRC have now published draft guidance for consultation.
The draft guidance is only two pages long but does provide some clarity over the intended scope of the new exemption. It states that where an individual is provided with workplace charging facilities for their own car or van no taxable benefit arises if all the following three conditions are met:
The draft guidance raises some interesting points:
The workplace charging exemption, though narrow in scope, provides some clarity over the treatment of workplace car charging. However, the treatment of payments made to employees for business mileage in electric cars remains an area of confusion.
In general, the treatment of business mileage payments will depend on whether:
Personally owned 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:
The situation for hybrid company cars is relatively straightforward – the normal diesel / petrol Advisory Fuel Rates (AFRs) can be used to reimburse employees for business travel where the cost of fuel (whether petrol / diesel or electricity) was incurred personally.
The situation however becomes much more complicated for pure electric company cars. As noted above, tax law does not treat electricity as a fuel. This means that, where an employee charges a pure electric company car themselves, their employer cannot use AFRs cannot to reimburse them.
If the employee is reimbursed, then the tax treatment depends on the use of the car:
If their employer does not reimburse them, they should be 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.
This complexity puts employees with pure electric company cars at a disadvantage compared with those with hybrid company cars (and those who use their own electric cars for business mileage). In the absence of any obvious policy rationale, it is to be hoped that this is something the government will rectify in the near future.