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Electric cars charging
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Tax Faculty sparks electric car benefits row

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HMRC has been asked by the ICAEW Tax Faculty to change incorrect guidance that tells employers to tax employees’ reimbursements for the cost of charging electric company cars.

19th Aug 2022
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The Institute of Chartered Accountants in England and Wales (ICAEW) Tax Faculty has asked HMRC to change its guidance that incorrectly tells employers to tax reimbursements made to employees for the cost of charging a company-owned EV. 

Electric vehicles (EVs) have become a popular tool for companies to reward employees and directors. Not only does a high-end electric car provide an instant status symbol, but the employee also saves a packet by not having to pay out for petrol. The taxable benefit for using an electric car is only 2% of its list price (frozen until 6 April 2025), and amounts to a big fat zero for using an electric van. 

The company also wins big, as it can claim a 100% deduction against corporation tax when it buys a new electric car. Brand-new electric vans qualify for the 130% super deduction when purchased by a company, and even second-hand electric vans will qualify for the annual investment allowance (AIA), which can be claimed by all types of businesses.

What about charging?

The argument with HMRC is over how employees should be taxed if the employer pays to charge the company-owned EV and that EV is used for non-business journeys. 

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Replies (18)

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By Hugo Fair
19th Aug 2022 12:49

The cause of this whole farrago is s. 149(4) of ITEPA 2003:
"References in this section 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."

Can anyone explain to me *why* this section exists - either in terms of it's origin in 2003 or later variation in 2010? And why HMRC shouldn't simply push for it to be removed?
It seems 'obvious' to me that electricity IS fuel in every other circumstance, so why not in cars?

What was once, presumably, an inducement to 'go electric' is unnecessary now - and certainly doesn't mean that it's not a BiK.

Thanks (5)
Replying to Hugo Fair:
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By gillybean04
19th Aug 2022 17:48

Class is in session: wouldn't that only apply to fully electric vehicles? Not any hybrids?

Is paying the employee's liability "any facility or means of supplying electrical energy"? Isn't it money that's being supplied?

Edited. Sorry, Hugo. You didn't volunteer to teach me anything but I enjoy debate and learning. Better to ask the question and be thought an idiot temporarily than remain silent and remain an idiot forever.

Thanks (1)
Replying to gillybean04:
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By Hugo Fair
19th Aug 2022 18:44

You're right, I didn't volunteer to teach you anything ... but that's because I don't have much knowledge to impart on this particular topic - not because I have any objection to trying!

You've actually raised the same two queries that popped into my mind - although my equivalent of your 2nd point was closer to:
* doesn't "facility or means for supplying" refer to things like installation of a charge-point - as opposed to paying for what is extracted (electricity), which seems to me to be a fuel in every other context around the world.

Anyway keep asking (and answering) ... the day when you cease to even want to learn is the day that life holds nothing more to look forward to.

Thanks (5)
Replying to Hugo Fair:
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By richard thomas
19th Aug 2022 20:23

I was just about to add the 2p worth of learning I'd managed to glean this afternoon when I read Hugo's latest - snap!

I was intrigued as he was by the apparent rationale for s 149(4) so I read it. Having done so I think the statement in the article:

"But s. 149(4) ITEPA 2003 clearly states that electricity is not fuel for company cars."

is an oversimplification or a misreading.

What is equated to "fuel" being provided by the employer is a "facility" or a "means" for supplying electrical energy, or hydrogen or anything that does not produce CO2. In the case of electricity that must mean the provision to the employee of a charger. So the exemption from the fuel charge (such as it is) applies to the charger, not the electricity. Whether a benefit for the supply of the charger arises under any other head I do not know.

A reimbursement for the electricity used to charge the car is, it seems to me, within the fuel benefit charge, because "fuel" is not limited to petrol or diesel.

S 149(4) dates from 2002. The Explanatory Notes merely say:

"10. Subsection (7) introduces a new subsection (9) [into s 158 ICTA 88 which became s 149(4) ITEPA] that provides that there is no taxable fuel benefit in respect of the provision of electrical power for an electrically propelled vehicle."

No - it's the provision of a facility to supply power.

Thanks (3)
Replying to richard thomas:
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By Hugo Fair
19th Aug 2022 23:24

Thanks. It did seem such "an oversimplification or a misreading" that, even with HMRC's past record for doing both, I was doubting myself ... so it's nice to hear a respected view on the same wavelength.

Just as well that I no longer use any mechanism, other than my legs, for transportation!

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Replying to Hugo Fair:
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By gillybean04
20th Aug 2022 01:40

Maybe there's some hope for me after all!

Thanks (1)
Replying to Hugo Fair:
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By paulwakefield1
20th Aug 2022 10:04

A layman weighs in and crashes blindly around the shop.

Doesn't it depend on how S149 (4) "....or any energy for a car which cannot in any circumstances emit CO2 by being driven" is read? Does it refer to the facility or is it a standalone additional clause?

As an aside, electricity does not meet the scientific definition of a fuel.

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Replying to paulwakefield1:
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By richard thomas
20th Aug 2022 12:48

I think it refers to the facility. When enacted in 2003 s 149(4) said:

"any facility or means for supplying electrical energy for an electrically propelled vehicle"

The 2010 amendment replaced the last five words with "or any energy for a car which cannot in any circumstances emit CO2 by being driven". What the legislator must have had in mind is that electricity is not the only alternative to fossil fuels, eg hydrogen. So there are now two types of thing that may be supplied by a facility or means.

But the wording is still ambiguous. Does it mean "electrical energy" for any vehicle and "any energy for a non fossil fuel car" or does it mean both electrical and other energy for a non-fossil fuel car. The latter, non-literal (I would say), construction is the much more sensible alternative given the context (and heading) for the rest of the section and of the section for van fuel which does not have the ss (4) exclusion.

Thanks for the scientific view. The critical question is though what is meant by "fuel" in Part 2 ITEPA. I do not think you can necessarily say that in ITEPA "fuel" does not include electricity. Section 149(4) is somewhat ambiguous. If it simply said "fuel" does not include "electrical energy" (or any of the other types) then it could either be saying that a normal meaning of fuel for tax purposes includes EE so we have to specifically exclude it or it could simply be done for the avoidance of doubt.

Thanks (2)
Replying to Hugo Fair:
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By farrcorfe
22nd Aug 2022 15:40

For the avoidance of doubt perhaps HMRC should change the word 'fuel' to read 'energy' !

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By Paul Crowley
19th Aug 2022 13:15

If only someone at HMRC studied tax

Thanks (3)
DougScott
By Dougscott
20th Aug 2022 09:15

I have never trusted HMRC's EIMs to be correct and always go back to the ITEPA which is the actual law on the subject. I fully agree with the ICAEW and recently posted something along these lines without realising ICAEW were questioning it). Interestingly the EIM contradicts HMRC own online guidance form about whether there is a tax charge. The online form clearly answers that if the employer pays for electricity there is no benefit to the employee (ie. the electricity doesnt have to be provided "locally"- wherever that idea came from!)

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Replying to Dougscott:
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By Hugo Fair
20th Aug 2022 12:49

It would be helpful if you provided a link to your source when referring to things like "HMRC own online guidance form about whether there is a tax charge" ... do you mean https://www.gov.uk/expenses-and-benefits-electric-company-cars ?

If so, I input:
* Yes (employer owns or hires car);
* That employee pays to charge the car, but employer pays them back;
* Employee uses the car for both business or personal journeys;
... and the answer is "payment to employee counts as (taxable/nicable) earnings".

[As you'd expect, if you select 'employee owns car', then the taxability only arises where ER is unable to show that the payments reflect solely consumption for business miles ... on which they are currently consulting since there's no agreed methodology to do this with electric cars.]

The only way that I've found to generate "You don’t need to pay tax or National Insurance on the electricity used to charge the car" is by selecting that it is a company car AND then ...
... saying that it is the ER who pays to charge the car (*not* EE reimbursed by ER).

As with all GOV.UK pages (and in particular any HMRC guides/forms therein) it has all been over-simplified. However it is clear (to me) that HMRC interpret direct payment of electricity by ER as precluding the supply taking place on the EE's premises ... which is where your concept of "locally" enters the game.

Thanks (1)
Replying to Hugo Fair:
DougScott
By Dougscott
21st Aug 2022 09:09

HMRC's guidance is that no taxable benefit arises when the charging is at the workplace, implying that if charging is provided anywhere else it is taxable as remuneration. The on-line tool answers that there is no taxable benefit if the employer pays for the charging full stop (ie, wherever it is, not just at the workplace). Most employers will provide electric charging accounts so that their ev fleets can charge at public chargers which will be in the name of the company and paid by the company. So the online tool effectively contradicts the written guidance.

Where HMRC refunds an employee for charging paid personally then I agree with ICAEW's approach that ITEPA should be followed and electric charging is not a fuel (though I'm sure the legislation will soon be changed so that charging is treated in the same way as fuel is now that ICAEW have raised the issue).

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Replying to Dougscott:
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By Hugo Fair
21st Aug 2022 13:27

It's not often that you'll see me write these words, but ... I have some sympathy for HMRC (in this area at least).

The world of EV charging options is like the Wild West (in Klondike times).
Not just with some ERs providing on-site facilities and some EEs installing chargers at home (some paid for by ERs but most not) - neither of which are common with petrol or diesel equivalents - but with seemingly every Tom, Dick & Harry installing charge-points on things like lamp-posts.
My local council has endorsed this with 4 different/competing suppliers - each of whom have completely different methods for payment (mostly proprietary apps, but some cards accepted albeit not consistently). Cue lots of cursing when drivers wait for 'my' lamp-post to become free only to discover it's incompatible with their set-up options!

My point in all this is that HMRC are struggling to keep up ... so be careful what you wish for or we may end up with a cack-handed 'solution' (like when they gave up legislating against individual drugs and introduced the Psychoactive Substances Act which technically means most of us break the law regularly).

Also, I don't see that "no taxable benefit arises when the charging is at the workplace" actually implies that "if charging is provided anywhere else it is taxable as remuneration".
It merely specifies an exemption of which there may (in theory) be many more - such as where the ER pays the supplier direct.
[Seems a little crazy that if I charge using the charge-point on my front drive then any repayment by ER is taxable; whereas, without moving my car, if I use the lamp-post charge-point next to my drive (despite the unit cost being higher) via an ER charge card then it's a non-taxable benefit for me]?

Anyway we can agree that HMRC are in a pickle (although we may disagree about the particular pickle) ... and I remain convinced that any original intent (to nudge EEs into demanding EVs from their ERs) has long since passed its sell-by date.

Thanks (2)
Replying to Hugo Fair:
DougScott
By Dougscott
22nd Aug 2022 09:47

Electric car charging is not nearly as complex and convoluted as HMRC and tax law. I have no sympathy with legislators or HMRC but I guess it keeps us tax advisors in business and gives us lots of entertainment on platforms like this!

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By Ian McTernan CTA
22nd Aug 2022 11:21

Just once again highlights that HMRC manuals and guidance are NOT the law- however much HMRC might try and convince the public they are (and I know a lot of people refer to them when answering queries..).

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By Munch
22nd Aug 2022 15:43

The real issue is that 5p a mile is nowhere near the actual cost of charging on the road. It just cost me £6 to add 40 miles at a Tesla supercharger

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By AndrewV12
02nd Sep 2022 10:35

I never thought of that angle, but as Ronald Ragan once said, "if it moves tax it" and cars do meet this criteria.

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