The world is changing rapidly, and with the UK Government committed to reducing the numbers of petrol and diesel company cars on the roads, it's worth talking about how they are taxed in 2021 as we move to electric vehicles ...
There have been changes to company car tax in 2021 as the Government encourages us to buy electric vehicles!
There have been some very significant changes in regard to capital allowances on business vehicles. The most important is that in support of zero-emission and ultra-low emission vehicles, the 100% first-year allowance has been extended until the 1st of March 2025. However, the emissions threshold was reduced on the 1st of April 2021 to 0g/km.
"Essentially, this means it only applies to purely electric vehicles!"
The main rate writing down allowance of 18% applies to cars with less than 50g/km for expenditure after the 1st of April 2021, and the special rate of 6% applies to vehicles with emissions above 50g/km. This new 50g/km threshold now applies to contract hire vehicles where the contract is for longer than 45 consecutive days.
When it comes to you charging electric vehicles, there are a number of considerations as to where you charge them and how you account for the electricity usage and the VAT you can claim back.
Usually, electricity supplied commercially is charged at the usual standard rate of VAT, whereas supply for domestic use is charged at the reduced rate of 5%.
Electricity supplied via a charging point incurs the same rate of VAT as other electricity use. So, if the charging point is at your office or other commercial location such as a service station, it's standard rate; if it's connected to your home, it's reduced rate.
"HMRC has released guidance, but many questions still remain unanswered!"
You then have to decide what proportion of the electricity that went into your electric vehicle was for business use and what was used personally. Although HMRC's guidance only mentions the self-employed, the same applies to partnerships being able to recover input tax.
If employees of a limited company, including directors, are charging company vehicles at their premises, then input tax can, of course, be recovered, but again only for business use. So, businesses that usually recover input tax in full on electricity bills need to carry out analysis on the cost per mile of the electricity they used for business purposes and keep records of it.
Although HMRC's new guidance makes no mention of this, it's recommended that any business use for an electric vehicle is accounted for at 4p per mile as output tax!
One thing that is a little questionable right now is why, when you charge at home, you can't recover the VAT on that electricity supply, whereas when you charge at your premises, you can. It seems there is a lack of clarity on HMRC's part; how is this different to an employee buying fuel at a filling station?
I'm hopeful there will be more guidance soon.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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