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CHARGING FOR CHARGING – THE ELECTRIC OR HYBRID TAX CONUNDRUM
The issue of charging points at work for electrical vehicles is throwing up a number of tax issues according to national audit, tax, advisory and risk firm Crowe UK.
Nick Latimer, Tax Partner in the Cheltenham office of Crowe UK, said the issues revolved around an employer permitting an employee to charge their car or van at work, free of charge, and how business mileage payments for electric vehicles should be treated.
“Recently issued HMRC guidance indicates that from 6 April 2018 if an employer provides the electricity required to charge a company vehicle, and it can be just plugged in when the employee arrives at work, then no benefit in kind charge will arise, notwithstanding the level of private mileage or where the vehicle is charged.
“Tax law also does not treat electricity as a ‘fuel’, and so the usual fuel benefit charge doesn’t apply for electric vehicles.”
The guidance will be finalised and published in the Employment Income Manual following Royal Assent of Finance Bill 2018-19.
But for hybrid cars, there is still a fuel benefit charge for the petrol or diesel provided for a company car.
Latimer said: “Where the employee privately owns an electric vehicle, the situation becomes more complicated, whether it is unpaid-for charging or reimbursement for business mileage.”
The guidance issued by HMRC indicates that where an individual is provided with workplace charging facilities for their own, privately-owned, car or van, there is no taxable benefit as long as three specific conditions are met. These are:
• The electricity must be provided through a dedicated charging point. Charging an electric vehicle via a normal mains power socket does not qualify.
• The charging facilities are provided at premises “under the control” of the employer.
• Charging facilities are available either to all employees generally, or all the employer’s employees at a particular location.
Latimer said: “However, if an employer pays when an employee charges an electric vehicle away from the workplace, such as at a motorway service station or outside a hotel, then the exemption does not apply. This could mean tax charges through payroll if the employee is reimbursed for private miles (which includes commuting), or a benefit charge if the amount is charged to a company credit card.”
When the focus falls on business mileage payments, either for private or for company vehicles, then the tax implications start to become complicated.
Latimer said: “It depends on whether the vehicle is owned by the employee or is a company vehicle, and in the case of company vehicles, whether the car is solely electrically powered, or has a hybrid power unit.”
Where employees use their personally-owned electric vehicles for business purposes, then Approved Mileage Allowance Payments (AMAPs) apply exactly as for petrol or diesel vehicles. Given electricity is cheap, AMAP payments represent a good return for employees (at up to 45p per business mile).
If the employer provides any reimbursement for business mileage, then this is tax and NIC free, as long as it is not higher than the approved AMAP rates. Any reimbursement higher than AMAP rates is taxable and must be reported to HMRC. Where an employer reimburses at lower than AMAP rates, employees can claim Mileage Allowance Relief.
In the case of company cars, when a hybrid vehicle is used, the usual petrol and diesel Advisory Fuel Rates (AFRs) apply and employees can be reimbursed for business travel when they have paid for petrol or diesel or electricity personally.
But when a vehicle is purely electrically powered, as noted earlier, electricity is not considered to be a fuel as far as existing tax law is concerned.
Latimer pointed out: “This, in effect, means that when an employee personally charges a pure electric car, the employer is unable to reimburse them via AFRs.
“Where the employee is reimbursed, then how the car is used will decide the tax treatment. Where it is solely used for business purposes, then reimbursement is fine, however that is not the case for personal or mixed use.
“In this case, the reimbursement would be treated as earnings and as such is taxable, albeit the employee is entitled to a deduction for the cost of business miles travelled.”
If the employer does not reimburse the employee, then the employee would be entitled to make a deduction for the actual cost of electricity for the business miles travelled.
However, this raises a further difficulty in identifying the actual cost for the electricity the vehicle has used on business miles.
Nick Latimer said, “It may be possible to identify the cost where a commercial charging point is used, but how would you calculate this when charging a wholly electric company vehicle at home?”
This is one area where advances in technology were currently outstripping the ability of tax law to keep up. Nick Latimer added, “As it stands at present, this could put employees with purely electrically powered company vehicles at a disadvantage compared to those using hybrid company vehicles. It is further complicated by those who use their privately owned electric vehicle on business mileage.
“There are clearly a few loose ends to be tied up here, and this is a good example where we should perhaps start with a blank piece of paper and write a new set of rules for private and company vehicles used for work and the treatment of the various fuel options currently available to them. The HMRC consultation is still open on this are until 5 July 2018, so we may see some improvements to the new legislation, and more detailed guidance in due course.”
“This, combined with proposed changes to company car taxation to be based on electric range as well as CO2 emissions from April 2020, means there are significant changes that need to be understood over the next couple of years.
“Employers should keep in touch with their specialist tax advisors to ensure they are keeping up to speed on the latest developments in this area.”