HMRC changes guidance on the tax treatment for charging company owned electric vehicles

What did the previous guidance say?

Prior to the new guidance being introduced, if an employer wanted to provide an employee with a company car, the tax treatment concerning reimbursement of fuel expenses depended on the type of vehicle and how it was used.

Previously, if the EV was charged at the home of an employee, the cost of charging would:

• Be reimbursed tax free if the EV was used solely for business purposes
• Be treated as earnings subject to income tax and NICs if an employee used the EV for business and also personal use

While the employee was able to deduct the cost of any business miles travelled, this still placed an administrative burden on them as they would need to keep a record of when they used their vehicle for private and business purposes.

This policy also caused complexity for employers, as the tax position for each payment would depend on what was considered ‘business use’. Further, the responsibility to demonstrate that the tax treatment of any reimbursement for charging an EV fell on the employer, meaning that some took the decision to tax the entire reimbursement regardless of the use, rather than running the risk of penalties if they failed to correctly split the cost between business and private use.

What has changed?

On 14 September 2023, HMRC revised their guidance. Now, employers can reimburse EV charging at the employee's home tax free – even if the employee uses the EV for private use (as well as business use). Home charging expenses can be reimbursed tax-free, regardless of whether the vehicle is used for business or personal purposes. From now on, no liability to income tax arises in respect of expenses incurred by an employee in connection with a taxable car. Further, the guidance provides that no Class 1 or Class 1A National Insurance Contributions will be due on these payments.

Impact

This change will provide significant benefits to employers and employees, as the more streamlined regime simplifies the treatment of tax for reimbursements, with no tax generally chargeable. This means that employees will not be liable to pay tax when reimbursed for the cost of charging their EV at home and will no longer need to keep records tracking whether the EV was used for business or private use.

Further, this change should act as an incentive to encourage employers to offer EVs as company cars instead of petrol or diesel vehicles. This will be an attractive incentive for companies with an environmental, social and governance (ESG) focus, which are looking to improve their long-term impact on the environment, their people and communities.