Fleet Electric Leasing

Tax Relief for Electric & Plug-in Hybrid Vehicles

When it comes to adding electric or plug-in hybrid vehicles to your fleet there are several different types of tax relief to be aware of depending on what the vehicle is, its CO2 emissions and how you purchase/lease it. There is also tax relief available on the charging equipment used to charge these vehicles.

  • Lease Rental Restriction - for vehicles that are acquired via a lease or contract hire
  • Capital Allowance - for vehicles that are acquired via a purchase product such as Hire Purchase (HP) or purchased outright
  • Annual Investment Allowance - for commercial vehicles or any vehicle that is licensed to be used for the transportation of goods or materials rather than passengers

Lease Rental Restriction

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.

From April 2021, 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. However, where a car has CO2 emissions above 50g/km, there is a flat-rate reduction of 15% in the value of the lease rentals that can be considered for corporation tax relief.

As a result, leased cars with a CO2 emissions value exceeding this threshold (50g/km) will attract less corporation tax relief, subsequently making them more expensive to provide.

For contracts entered in to from April 2021

CO2 Emissions Allowed Rentals Disallowed Rentals
50 g/km or below 100% 0%
Above 50 g/km 85% 15%

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.


Lease Rental Restriction Guides

What were the lease rental restrictions prior to April 2021?
Example 1: Tax relief for a car with CO2 emissions less than 50 g/km
Example 2: Tax relief for a car with CO2 emissions more than 50 g/km
Lease Rental Restriction FAQs

Capital Allowances

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.

  • First Year Allowance (FYA): 100% of the value of the asset can be written down in year 1. Applicable to electric cars and electric charging points.
  • Main Pool Allowance: 18% of the value of the asset can be written down each year. Applicable to cars that produce 1 - 50 g/km of CO2
  • Special Rate Pool: 6% of the value of the asset can be written down each year. Applicable to cars that produce more than 50 g/km of CO2

For contracts entered in to from April 2021

CO2 Emissions Allowed Rentals
0 100%
1 - 50 18%
Above 50 6%

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.


Capital Allowance Guides

What were the capital allowance rates prior to April 2021?
Example 1: Tax relief for a car with Zero CO2 emissions
Example 2: Tax relief for a car with CO2 emissions less than 50 g/km
Example 3: Tax relief for a car with CO2 emissions more than 50 g/km
Capital Allowance FAQs

Annual Investment Allowance (AIA)

From 1st January 2021, the maximum Annual Investment Allowance (AIA) reduced from £1 million to £200,000.

It is effectively a 100% allowance that applies to most qualifying expenditure up to the annual cap, with expenditure on cars being the most important exception. Commercial vehicles, such as vans, should qualify for the annual investment allowance.

Where qualifying expenditure exceeds the annual cap tax relief will be given under the normal capital allowance regime via the main or special rate pools, with writing down allowances being given at 18% or 6% respectively, on the reducing balance basis.


Annual Investment Allowance (AIA) Guides

 

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