In recent years the Government have been providing businesses with lots of different carrots and sticks to accelerate the uptake of ultra-low emissions vehicles (ULEVs), and 2022 is no different. Below are all the new and continuing tax benefits and incentives the Government is providing in 2022-23 to help businesses switch to electric cars and vans.

Benefit-in-Kind Rates (Company Car Tax)

For all company cars registered on or since 6th April 2020, the appropriate percentage of Benefit-in-Kind (BiK) tax increases by 1% from 6th April 2022 and will be fixed for the next two tax years as well. For electric cars which had attracted 1% in 2021-22, they will now attract a 2% BiK rate, which means an employee will still pay an extremely low amount of company car tax for the pleasure of driving an all-electric car.
A Volkswagen ID.4 Life Pure* with a 213-mile range for example would cost a 20% taxpayer only £12.17 a month in company car tax until 2025. For the full breakdown of BiK rates by year see our handy BiK rate table.

For company cars registered prior to 6th April 2020, there is no change in the appropriate percentage of BiK tax unless the car is an electric car. Electric cars attract the same rate of company car tax irrespective of when they are registered. For the full breakdown of BiK rates by year see our handy pre-6th April 2020 BiK rate table.

*P11D Value of £36,495

Lease Rental Restriction (Corporation Tax Relief)

If a company leases its cars, then the finance element of the lease rental that the company pays constitutes a cost that can be offset against its profits (normally in the year that they are incurred), therefore paying less corporation tax.

Alongside the great environmental benefits, opting for a plug-in hybrid or electric car now provides greater corporation tax relief too.From April last year (2021), the threshold for cars that can offset 100% of the lease rental against corporation tax was reduced from 110 g/km of CO2 to just 50 g/km. If a car has CO2 emissions of 50g/km or less, then the full amount of the finance element of the lease rental will attract tax relief, whereas if the car exceeds 50 g/km then only 85% of the lease rental will attract tax relief. 

If the timing of the lease rentals is not spread evenly (for instance, there is a large upfront payment) then the tax relief will be spread evenly throughout the lease period rather than over the period when the cost of the lease rentals is incurred.

100% First Year Writedown Allowance (Corporation Tax Relief)

When a company purchases a fixed asset, such as tools, machinery or a car, it is not usually possible to deduct the entire expenditure on the asset from the profits straightaway on the basis that it represents capital expenditure. Instead, tax relief is calculated for qualifying capital expenditure by way of capital allowances, which effectively spreads the amount of tax relief that can be claimed over a number of years; as opposed to the depreciation for accounting purposes, which is generally not deductible for tax purposes.

With company cars, there are special rules dictating the amount of capital allowance that can be offset against profits each tax year depending on the CO2 emissions (g/km) of the vehicle. As electric cars emit no CO2 emissions the full capital expenditure, even if purchased via Contract Purchase, Lease Purchase or Hire Purchase, can be declared in the first year.

Until April 2025, a business that purchases a van with zero CO₂ emissions is eligible for a 100% First-Year Allowance (FYA) provided the business does not claim the government’s Plug-In Van Grant (PIVG).

Any other van should be treated as plant and machinery and allocated to the main pool, where it will be eligible for writing down allowances at 18% unless an Annual Investment Allowance is claimed.

*Assumes current corporation tax rate of 25% remains unchanged

Value-Added Tax (VAT)

There is no special treatment for electric cars and vans in regards to VAT, they follow the same rules as internal combustion engine vehicles. Typically no VAT is reclaimable when purchasing (including via Contract Purchase, Lease Purchase or Hire Purchase) cars, however, qualifying commercial vehicles can reclaimable 100% of the VAT based on the fact they are used solely for business reasons.

In regards to leasing cars, HMRC views the use of company cars that are leased as 50% personal and 50% business, and therefore half of the VAT on the vehicle rental can be reclaimed. If a fixed priced maintenance package is included then 100% of the VAT on this product can be reclaimed.

As electric cars and hybrids that emit less than 50g/km of CO2 emissions can offset 100% of the vehicle rental against corporation tax under the Lease Rental Restriction, there is a further benefit due to the higher amount including the non-reclaimable VAT. 

Van Benefit Charge

Unlike company cars which are taxed based on the value of the car and its associated CO2 emissions, if a van is driven by an employee for both business and personal use, the employee's tax is based on the Van Benefit Charge. 

To incentivise the uptake of zero-emission vans, from 6th April last year (2021) there has been ZERO van benefit charge for an electric van. As a result, an employee driving an electric van as a company car will pay no company car tax at all. As the employer's National Insurance Contributions (NICs) are linked to the Van Benefit Charge, opting for an electric van will also provide savings for the business too.

For all other vans, the government has announced that the van benefit charge will be uprated by the Consumer Price Index (CPI) from 6 April 2022 increasing from £3,500 to £3,600. Based on a 20% taxpayer, operating a van as a company car would cost the employee £720 a year which the employee would see as a £60 reduction in their salary.

Super Deductions

One of the big news stories from the March budget last year was the introduction of super deductions which until the end of March 2023, allows companies to claim 130% capital allowances on qualifying plant and machinery investments. With HM Treasury clarifying that electric vehicle chargepoint count as plant and machinery, those businesses with the capability to install workplace charging points in their car parks, depots and forecourts will be able to cut their taxes by 25p for every pound the company invests.

To date and until 31st March 2023, electric vehicle chargepoints have qualified for 100% First Year Allowance (FYA), so with their newfound eligibility, under super deductions, fleets will be able to enjoy the additional 30 percentage benefit.

For those businesses which do not benefit from capital allowances, there is also the Government's Workplace Charging Scheme (WCS) which provides a £350 grant for every socket installed, up to a maximum of 40 chargepoints (£14,000). So whichever way you like, there has never been a better time to install electric vehicle charging points.

Fuel Benefit Charge

HMRC do not classify electricity as a fuel and therefore the charging of electric cars and vans does not attract any benefit-in-kind (BiK) payments.

While there are lots of varying means for businesses to reimburse their employees for fuel, the government has announced that the fuel benefit charges for cars and vans will be uprated by the Consumer Price Index (CPI) from 6 April 2022. The uprate will take effect as follows:

• car fuel benefit charge multiplier will uprate from £24,600 to £25,300
• van fuel benefit charge will uprate from £669 to £688

Plug-in Car Grant

The Government's Plug-in Car Grant (PiCG) administered by the Office for Zero Emission Vehicles (OZEV) provides a discount on the price of brand new low-emission vehicles given directly to vehicle dealerships and manufacturers. You do not need to do anything if you want to buy or lease one of these vehicles, the dealer will include the value of the grant in the vehicle’s price.

To be eligible for the grant, cars must cost less than £32,000. This is the recommended retail price (RRP), and includes VAT and delivery fees. The grant will pay for 35% of the purchase price for these vehicles, up to a maximum of £1,500.

Plug-in Van Grant

The Government's Plug-in Van Grant (PiVG) administered similarly to that of the PiCG provides a discount of 35% of the purchase price of a van, up to a maximum of £2,500 for small vans and £5,000 for large vans. Eligible vans are vehicles that have CO2 emissions of less than 50g/km and can travel at least 96km (60 miles) without any emissions at all. Small vans are defined as having a Gross Vehicle Weight (GVW) of less than 2,500 kilograms (kg), whereas large vans as defined as those between 2,500kg and 3,500kg.

Electric Vehicle Homecharge Scheme

The Electric Vehicle Homecharge Scheme (EVHS) is a grant that provides a 75% contribution to the cost of one chargepoint and its installation. A grant cap is set at £350 per installation. The main requirement is that a person owns, leases, or has ordered a qualifying electric vehicle and has dedicated off-street parking.

From April 2022, the EVHS is no longer open to homeowners (including people with mortgages) who live in single-unit properties such as bungalows and detached, semi-detached or terraced housing.

The scheme remains open to those that live in flats (including leasehold) and rental accommodation, however, they will need that landlord's permission to have a chargepoint installed.

Landlords and social housing providers can also qualify with a limit of 200 applications per year. The applicant must be a registered business or a public authority.

The installation of a chargepoint at an employee's home doesn't attract benefit-in-kind taxation so long as the chargepoint is used to charge a company vehicle.

Workplace Charging Scheme

The Workplace Charging Scheme (WCS) is a voucher-based scheme designed to provide eligible applicants with support towards the upfront costs of the purchase and installation of  EV chargepoints. The contribution is limited to 75% of purchase and installation costs, up to a maximum of £350 for each socket, up to a maximum of 40 across all sites for each applicant. The Workplace Charging Scheme (WCS) is available to registered businesses, charities and public sector organisations that have dedicated off-street parking.

From 1st April 2022, in addition to the £350 per socket, the WCS will also be able to provide additional help for small and medium-sized enterprises (less than 250 employees) to provide their staff or fleet car parks with EV chargepoints.

• The additional grant monies will provide up to £15,000 per building towards the cost of installing chargepoints, with a maximum of 5 grants available.
• The amount of grant available will depend on how many parking bays are being provisioned with either a chargepoint socket (up to £850 available per bay) or supporting infrastructure for a chargepoint to be installed at a later date (up to £500 available per bay).
• The business location must have associated private parking. There is no limit as to how many chargepoint sockets can be installed at each site (within the overall number of grants available). A minimum of 5 bays must be provisioned, at least one of which must have a working chargepoint.

Vehicle Excise Duty

Vehicle Excise Duty (VED), otherwise known as Road Tax is calculated based on the CO2 emissions (g/km) of the vehicle. With Electric Vehicles (EVs) not emitting any emissions, they are exempt from the first-year rate, standard rate and premium rate.

Every year from 1st April the Government uprate the Vehicle Excise Duty (VED) rates for cars, vans and motorcycles by the Retail Prices Index (RPI). With this increase, it continues to make the financial benefits of going electric even greater.