Susan Ball

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Susan Ball

Partner

Changes to electric car taxation are just tinkering under the bonnet

The Government has confirmed it will guarantee loans of £500m to Jaguar Land Rover after Britain’s biggest car maker said it would develop and produce new electric vehicles in the UK. 

This comes hot on the wheels of a Treasury report confirming that company car drivers who choose an emissions-free electric model will pay no benefit-in-kind (BiK) tax for 2020/21 as part of new efforts to encourage motorists to switch to green vehicles.

Tax charges will apply from the 2021/22 financial year though, with a 1 per cent BiK rate on the list price of these vehicles, which will increase to 2 per cent in 2022/23. A 2 per cent rate had originally been planned to be applied in 2020/21.

New cars emitting no more than 50g/km of CO2 with an electric only range of at least 130 miles will be covered by a 0 per cent BiK rate from 6 April 2020. This covers hybrid and plug-in hybrid vehicles, though no models fitting these criteria are currently available in the UK. 

In practice this amounts to little more than tinkering under the bonnet; something we have seen over the last few years with the introduction of the workplace charging tax exemption for electric and plug-in hybrid vehicles and the official mileage rate for electric-only cars of 4 pence per mile.

Clearly the Government is set on drivers going electric and in two announcements made recently it has called for public electric car charge points to accept debit and credit card payments by 2020 - and for new-build homes to have chargers in a fresh boost for zero-emission vehicles.

The popularity of electric cars in the UK has shot up over the last few years, with more than 220,000 plug-in vehicles on the road in 2019, compared with just 3,500 in 2013. However, this has done little to halt the move away from company cars, as demonstrated by the recently issued P11D statistics for 2016/17 (which includes provisional figures for 2017/18) – at least not before electric and sub-50g/km company cars become available in far more significant volumes.

So, the real benefit of the Treasury report is confirmation that these ultra-low emissions vehicle BiK rates will remain in place for the next three years, giving clarity to fleets and encouraging the industry to make more environmentally friendly cars available at the right prices.

However, what is needed now is an HMRC mileage rate for hybrid cars. There are currently no specific rates for hybrid cars. HMRC recommends plug-in hybrid and hybrid car drivers use advisory fuel rates (AFRs) according to the amount of fuel the engine uses. Employers should also keep in mind that the HMRC rates don’t consider whether a driver mainly uses the electric motor or petrol engine.

HMRC could therefore complete the set of initiatives to encourage drivers and fleets to use their cars in the most environmentally-friendly way by releasing an advisory electricity rate (AER) for plug-in hybrids.

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