With a trend towards electric vehicles (EVs) only likely to become more apparent in years to come, businesses more and more may be beginning to think about how they could incorporate EVs into their existing benefits offering.
Not only are many EVs better for the environment, but they could also offer businesses considerable savings when offered as a salary sacrifice scheme.
Businesses can use employee salary sacrifice – most commonly utilised in relation to pension contributions, cycle to work and childcare vouchers, to name a few – to fund the purchase of new EVs in a tax-efficient manner.
In principle, salary sacrifice is simple; the employee ‘sacrifices’ a portion of their salary and the employer invests this sum in a particular benefit – in this scenario, an EV.
Using salary sacrifice saves the employee National Insurance Contributions (NICs) and Income Tax.
Of late, however, HM Revenue & Customs (HMRC) has taken a tougher approach to many salary sacrifice schemes, often compromising the effectiveness of them and so the appeal of operating them.
Thankfully, ultra-low emission vehicles benefit from a special exemption, implemented to encourage motorists to consider purchasing electric and hybrid models before the petrol and diesel vehicles we are so used to.
When the exemption was confirmed, it was made clear that the provision of an EV via salary sacrifice would be considered a benefit-in-kind.
Initially, the benefit-in-kind (BiK) rate on a pure electric car was 16 per cent. In many cases, this actually amounted to little or no benefit at all. However, following changes in April last year, all pure electric cars now have a zero BiK rate and so, as a result, salary sacrifice benefits can truly be considered beneficial.
The zero per cent rate also applies to hybrid vehicles that are first registered from 6 April 2020, that produce between one and 50g/km of CO2 and that are capable of at least 130 battery powered miles.
People looking to purchase a new company car in the next year should review the Government’s latest rates, which can be found here. Be aware though, rates change annually and may differ post-April 2021.
Company car users and the businesses offering such schemes can also benefit from a handful of other tax incentives, especially where the vehicle is being used for business purposes. These include:
- Corporation Tax relief
- Reclaiming VAT on a vehicle purchase
- Lower vehicle excise duty
- Plug-in grants
- Tax-efficient electric car charging points
It is not surprising that, as technology evolves, more businesses are giving serious thought to EV salary sacrifice or otherwise investing in a fully electric or hybrid fleet to meet the needs of their organisation.
Long-term, the Government has already reinforced its commitment to a ban on the sale of new purely petrol and diesel vehicles by 2030. This once ‘far-off’ goal is now less than a decade away, and so ensuring that your business is ahead of the curve could serve you well further down the line.
How can George Hay help?
Our expert tax advisers can help you to understand the tax implications of operating salary sacrifice schemes for your employees, whether in relation to EVs or alternative benefits.
We can also advise you on how salary sacrifice schemes and other benefits-in-kind should be reported to HMRC.
To discuss your plans for providing benefits to your employees, or for more information about the tax and accounting services we offer from our offices in Biggleswade, Huntingdon & Letchworth, please contact us today.