Despite the potentially high personal tax charge, many employees still enjoy and prefer the convenience of being offered the use of a company car by their employer.
Those employers familiar with the benefit-in-kind tax rules will be aware the tax impact on the employee is much lower for those that choose lower emission cars.
On 6 April 2020, new benefit-in-kind percentage bands were introduced which took into account very low-emission cars and electric cars, favouring full electric cars more.
This is not the first time the Government has used tax policy to try to encourage more drivers to make the change to electric.
For five years from 6 April 2010, providing a zero-emission electric company car was tax-free to the employee but this failed to generate any big take-up, potentially due to the lack of car choice and supporting infrastructure
Electric cars are, however, now becoming more mainstream.
With more options on the market and with better infrastructure, they are now a much more viable option for an employer looking to provide an employee with a tax-efficient company car.
The past few years have also seen a significant increase in awareness of climate change among the general public and how individuals’ choices can contribute to a greener future.
Employers have also been taking this on board.
Those that provide employees with company cars have been recognising that changing their fleet to low or zero-emissions vehicles can help contribute towards this common goal and be an attractive option to their staff from a personal perspective.
There are also many financial reasons why both the employer and employee might wish to make the switch to an electric car.
As part of its push to encourage the switch to electric cars, the Government intends to provide more than £532 million for consumer incentives for ultra-low emission electric cars.
Around £403m of this is earmarked for the extension of the plug-in car grant (PICG) to 2022/23.
From 12 March 2020, those making the switch to electric cars were eligible to apply for a grant of up to £3,000 towards the purchase of a new electric car.
In order to maximise the number of consumers who can benefit from this grant as the uptake increases, the Government reduced the available PICG and capped the value of cars on which it could be claimed. Currently, the PICG grant stands at £2,500 and cars costing more than £35,000 are excluded.
In addition, money has also been set aside for grants to encourage the switch to zero-emission vans, taxis and motorcycles in years to come.
As well as grants supporting car purchase, the Government has put in place a voucher-based workplace charging scheme. This provides eligible employers with support towards the upfront costs of buying and installing electric vehicle charge points at the workplace.
For those employees using a company car for business journeys, the employer can pay a fuel-only mileage rate to reimburse fuel costs. The advisory rate set by HMRC depends on the car fuel type and engine size.
For a petrol car with an engine size of over 2000cc, the advisory fuel rate is currently 19p per mile. For an employee travelling 10,000 business miles a year, this would cost the employer £1,900. In contrast, the rate for a full electric car is just 4p per mile, costing the employer just £400.
For more on the pros and cons of Electric Cars