Electric company car tax explained

UK employees pay tax on many company benefits, such as accommodation provided by their employer, company cars where private use is permitted (including for commuting) and any fuel consumed during private use paid for by the employer.

In general, the employer calculates this tax as a ‘benefit in kind’ value, and it is deducted directly from the employee’s wages via PAYE.

The amount of tax paid on a company car — including an electric company car — depends on some characteristics of the vehicle, its engine type, emissions, and the private use the employee gets from it.

It’s also worth noting that benefits paid as cash are treated as earnings, and will therefore incur Income Tax and National Insurance at the relevant rates. This can include cash payments from the employer to cover fuel costs.

Do I Have To Pay Tax On An Electric Company Car?

If you are allowed to use an electric company car for private purposes, you must pay tax on it as a ‘benefit in kind’. This includes commuting, so typically the only exception is if your vehicle is parked at work and solely used for business and you arrive to and from work via another vehicle or public transport.

The amount of tax you pay depends on the value you get from the vehicle when using it privately. As well as the criteria already mentioned above, this can depend on the market value of the car.

How Can I Reduce The Tax I Pay On A Company Car?

Several factors can lower the tax you pay on any company car, especially including a low-emission electric company car:

• The vehicle’s CO2 emissions.
• Any contributions you make towards its cost.
• If you only have part-time access to the car.

Hybrid electric vehicles with CO2 emissions of between 1g/km and 50g/km are charged based on the electric range of the car, or on its zero-emission mileage. In both cases, this is how many miles the vehicle can drive on electric power, before it needs to be recharged.

Generally speaking, it is the employer’s duty to identify or calculate the vehicle’s zero-emission mileage figure; however, you might want to make sure that you know this figure, and double-check that it is correct for your electric company car.

When Do I Need To Notify HMRC?

You should notify HMRC of any changes to your company car, including if you switch from an internal combustion engine to a zero-emission EV or a low-emission hybrid, as this could reduce the amount of tax you have to pay.

There is an online reporting system to update your company car tax if any of your details change, including, for example:

• You get a new company car or stop using your old one.
• You change your agreement with your employer about who pays for fuel.
• There is a significant change in the value of the car.

In the context of electric cars, and when charging hybrid EVs, ‘fuel costs’ can include the cost of electricity — it doesn’t just mean petrol, diesel or LPG.

Calculating how much tax to pay

To know how much tax to pay on electric company cars, you can use HMRC’s Company Car and Car Fuel Benefit Calculator (CCF-0), which is available on the HMRC website.

You will need to know several characteristics of the vehicle to complete the calculations. Some of the key features of electric company car taxes include:

Fuel Type

From 2011-12 until 2018-19, car fuel types were split into three categories for tax calculations:

• Fuel Type E for zero-emission vehicles, including fully electric EVs.
• Fuel Type D for all diesel cars.
• Fuel Type A for all other cars.

As of 2019-20, a fourth category was introduced:

• Fuel Type E for zero-emission vehicles including fully electric EVs.
• Fuel Type F for diesel cars that meet Euro Standard 6d.
• Fuel Type D for all other diesel cars.
• Fuel Type A for all other cars.

CO2 Emissons

New cars sold in the UK are put through a ‘type approval’ test, which includes measuring the CO2 emissions from the vehicle’s exhaust. This ‘approved CO2 emissions’ figure is recorded on the vehicle’s type approval certificate and is used to calculate car benefit values.

The CO2 emissions figure on the type approval certificate is used throughout the life of the vehicle — it is not recalculated based on the age of the car.

You can find this value on the V5C vehicle registration certificate for cars registered after March 1st 2001, which should include the vast majority of electric company cars on the roads over 20 years later.

Zero Emission Mileage

Since April 6th 2020, the calculation of company car benefit in kind for tax purposes is based on the ‘zero emission mileage’ for hybrid EVs with CO2 emissions of 1-50g/km.

As mentioned above, this is the maximum range of the vehicle on a full battery charge, when driving in electric-only mode.

Deducting Employee Payments For Private Use

If you have an arrangement with your employer whereby you pay for the right to use your electric company car outside of work, these payments can be deducted from the vehicle benefit charge.

• To qualify, these payments must meet several criteria:
• They must be required to be made within the relevant tax year.
• The payments must be made within that same tax year.
• The payments must be identified as specifically for private use.

Any such payments must be agreed upon with your employer ahead of time and must be classed solely as a contribution made by the employee for private use entitlement, and not for any other reason or cost.

Non-Qualifying Payments

• Not all vehicle-related payments qualify as deductions. Some payments you can’t deduct include:
• Electric company car leasing costs.
• Road tax and insurance.
• Payments for fuel, including charging costs (see below).

Because of this, it is important to have a clear agreement in place and document that any employee payments are for private use of the vehicle, if you want to reduce the tax payable on the company car as a benefit in kind.

Private Fuel Costs

If the employer supplies the fuel for the vehicle — for example, if it is charged via a workplace charging point, or using business funds to pay for a public charge point — then a fuel benefit charge also applies for tax purposes.

This may be avoided if the employee incurs the cost in one of the following ways:

• The employer only covers the cost of fuel for business use.
• The employee repays to the employer the cost of any fuel used for private purposes.
• A mileage allowance is paid, covering business travel only.

Adding Up

Employee benefits are a complex topic, with many variables and exemptions that can affect the exact amount owed — and the way you fund a particular benefit, such as an electric company car, can have a direct impact on the Income Tax and National Insurance owed at the end of the year.

Rules change regularly, especially at the start of a new tax year — so always check that your calculations are correct to ensure employees are not paying more in PAYE deductions than necessary for the benefit of driving an electric company car.