From this month, HMRC have amended their guidance on the tax treatment of charging company-owned electric cars and vans at residential properties. Previously, the costs of home charging electric company cars were treated as a taxable benefit, chargeable as earnings. Now, there is no tax charge to the employee where an employer reimburses the costs of charging a company electric vehicle at the employee’s home.
Why the change in policy?
During the 2021/2022 tax year there were 720,000 company cars on UK roads, 17% of which were fully electric cars. With the accelerating popularity of electric cars, likely due to the attractive tax benefits that can be claimed by opting for an electric company car over a petrol car, there has been confusion and debate amongst accounting professionals and tax advisors over HMRC guidance that was seemingly at odds with existing legislation.
Section 239 ITEPA 2003 states that “No liability to income tax arises in respect of a payment to an employee in respect of expenses incurred by the employee in connection with a taxable car or van or an exempt heavy goods vehicle.” The provision of fuel, however, does not fall under this legislation and is potentially a taxable benefit.
Until recently, HMRC guidance was that the provision of electric vehicle charging at home was not covered by the exemption at s239 ITEPA 2003. This seemed to contradict the widely recognised view that electricity is not a fuel for the purposes of tax legislation and should be deemed part of the maintenance and running costs of the vehicle.
HMRC has now updated the guidance at EIM23900 to state that “The exemption under s.239(2) ITEPA 2003 means there is no separate charge to tax under the benefits code where an employer reimburses an employee for the cost of electricity to charge their company car at home”.
What does this mean for me?
For the costs to be exempt from a tax charge, care will need to be taken when claiming the electricity reimbursement. The onus is on the employer and employee to demonstrate that the electricity cost being claimed has been used solely for charging the company electric vehicle.
Taxpayers who have been charged income tax on the reimbursement of electricity costs may be entitled to claim overpayment refunds. Advice should be sought from a professional tax adviser.
For employees that use their own electric vehicle (rather than a company-provided vehicle) for business purposes, the guidance is still vague. EIM23900 states that reimbursement of electricity charging costs for private use of the vehicle is taxable as earnings. Alternatively, the employee should keep a mileage log for business journeys and claim the AMAP rates of 45p per mile for the first 10,000 miles and 25p per mile thereafter. The AMAP rates are the same whether the vehicle is electric, petrol or diesel.