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.
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.
|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.
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.
|CO2 Emissions||Allowed Rentals|
|1 - 50||18%|
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.
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.