Going Electric - Fuel for Thought

A number of frequently asked questions arise on the employer provision of an electric car. One area of conflict with HMRC has been their guidance on the reimbursement of electricity costs to an employee on employer provided vehicles for private use.

For some time, HMRC had stated that it was earnings subject to both tax and National Insurance contributions (NICs). This was considered odd given that the income tax legislation on car benefits specifically 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 benefit of car fuel is excepted from this, but:

References in this section (s149 (4) ITEPA 2003) to fuel do not include any facility or means for supplying electrical energy or any energy for a car which cannot in any circumstances emit CO2 by being driven.

HMRC updated guidance (September 2023)

Fortunately, HMRC have now corrected their guidance as follows :

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.

HMRC have also taken the opportunity to add in new guidance concerning National Insurance aspects of electric cars. This confirms that  no Class 1 or Class 1A NIC is due either on these payments. (Regulation 25 SSCR 2001 (SI 2001 No 1004).

Employers must ensure however that the reimbursement made towards the cost of the electricity is solely for the company car. This requires accurate costs and whilst smartphone apps that link to EV chargers are available, many are still in the beta stages of testing so care is recommended.

And home charging points?

This is another area of interest. Where an employer pays for a vehicle charging point to be installed at the employee’s home and it is an employer provided vehicle then no taxable benefit arises (s239(4) ITEPA 2003). However, if it was for an employee owned car then there is a taxable benefit based on the cost to the employer rule.

The updated guidance for both income tax and National Insurance is essential reading to ensure clarity of the treatment of various costs and benefits associated with electric car provision or use of own car.

The guidance can be found as follows:

HMRC Internal Manual: Employment Income Manual EIM23900

HMRC Internal Manual: National Insurance Manual NIM06440

The legislation can also be accessed in Section 239 of the Income Tax (Earnings and Pensions) Act 2003