18.10.2023 | Tax

HMRC issues new rules on reimbursing employees for electric car charging

In a turn around to its previous rules, HMRC has released new guidance on who should pay for electric car charging at home. 

Under previous rules, HMRC stated that where an employer reimburses employees for the cost of charging a company-owned, wholly electric car that allows private use, the reimbursement was taxable as earnings. Now, things look a little different, and employees should consider making expense claims for electricity used if they have not already done so.

Head of Taxation at Beatons Andrew Diver explains:

“In a change of its views on this, HMRC has now indeed updated its guidance. It now reflects the view that no separate charge to tax should arise under the benefits code where an employer reimburses an employee for the cost of electricity to charge their company car at home, in line with the exemption in s239(2), Income Tax (Earnings and Pensions) Act 2003. 

HMRC has issued guidance that employers will need to ensure that the reimbursement made towards the cost of the electricity is solely for the company car and that expenses claimed by employees are calculated using an accurate reading of the amount of electricity used to recharge the car.

“Keeping records will be important, but the change to the rules adds to the positives of using electric cars for business as there are a few benefits for both company and employees.”

Benefits of electric company cars

Over the last few years, HMRC has used company car taxation to drive down CO2 emissions, and as a result, there was a reduction in company cars being provided.  However, there has been a resurgence, especially if the car is electric. This is likely because of the significant tax advantages of using an electric vehicle.

Andrew says: “If your business purchases an electric vehicle outright or using finance and the car is new and fully electric, then it is eligible for the 100% Annual Investment Allowance. This is providing that the total capital expenditure by the company during the accounting period is within the allowable limit of £ 1 million as it won’t be covered by the new full expensing regime.

“Leased cars offer benefits too, as if leased, new and fully electric, then the company will be able to claim tax relief for all the lease payments without any restriction. Additionally, 50% of the input VAT can be claimed back on leased cars which have private use.”

Employee benefits

For employees, we have to think about the rules of ‘benefit in kind’.

The benefit in kind will be 2% of the list price for the tax year (22/23 and the following two years) as long as the car is fully electric and has a zero CO2 emissions figure.

For example, the benefit in kind on a fully electric car with a list price of £35,000 would therefore only be £700, which would result in tax for a basic rate taxpayer of £140 or £280 for a higher rate taxpayer.

There will be no fuel scale charge as electricity is not a fuel.

The bonus of electric charging points

When a company installs a charge point, it is eligible for a 100% Annual Investment Allowance on the equipment as long as it is unused and not second-hand.

Note that expenditure for the company must also be within the capital expenditure limit for the accounting period, which is £1m.  This applies to expenditure on electric charging points up to 31 March 2025.

But care should be taken when paying for a charging point at an employee’s home for a privately held electric vehicle, even if used for business, as the costs of installation will be a taxable benefit.

Income from charging points

Any income from a company charging point which others are paying to use would need to be treated as ‘other income’.

Supplies of electricity to third parties are vatable at a standard rate. VAT input claims would be restricted for private use by employees.

 It’s important that employees keep records of both business and private use of the electric cars which have been charged at work.

For more information on using electric cars as part of your company, visit Beatons and use the search function.

We have experts in this area who can advise on any of the above or any other tax and business queries, so contact Beatons at info@beatons.co.uk or 01473659777.