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HMRC clarifies tax on reimbursement of electric car charging | AccountingWEB |
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HMRC clarifies tax on reimbursement of electric car charging

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Electric cars are becoming ever more popular, particularly as a company car where the tax benefits are attractive. However, there has been confusion and disagreement among advisers on whether HMRC guidance on businesses reimbursing their employees for the cost of charging a vehicle at home was correct.

13th Oct 2023
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HMRC has updated its Employment Income Manual to bring the guidance on charging electric cars at home in line with the legislation. Having accepted that the original guidance was wrong HMRC has now introduced revised guidance which seems to try to introduce a new, unjustified, restriction.

Question

If a company provides an employee with a company car for which there is no business use (100% private use) and the employee has to replace tyres on the car, meeting the cost personally and then claiming reimbursement from the company, does that reimbursement give rise to a taxable benefit in kind (BIK)?

Answer

No, and nobody would suggest it does. It makes no difference whether the car is used wholly privately, part private part business or wholly for business.

HMRC’s short circuit

Section 239 ITEPA 2003 (s239) reads: “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 legislation goes on to say that this exemption does not apply to car fuel.

Until now, the guidance in the Employment Income Manual (EIM23900) has contradicted the legislation in advising that if an employer reimburses an employee for charging their car at home this would be a taxable benefit.

The cost of domestic electricity incurred charging the company car at the employee's home is, in tax law, indistinguishable from the other running and maintenance costs (insurance, repairs etc.) and should be covered by the exemption in s239. As is widely recognised, electricity, for tax purposes, is not fuel.

Following a campaign by the ICAEW, HMRC has now conceded that the s239 exemption does apply to home-charging company cars and vans as long as the employer ensures that the electricity reimbursed is solely used for charging the company car. The guidance in EIM23900 has been duly updated, although at the time of writing the Check if you need to pay tax for charging an employee’s electric car tool is yet to be corrected.

Wires still crossed

Skimming through the updated guidance reveals a fresh attempt by HMRC to overtax those pesky environmentally conscious taxpayers. Stage 3 of the ‘Flowchart’ under EIM23900 ‘Employee charges car at home: their employer reimburses the electricity costs’ is the question: “What is the car used for?” alongside the advice “If private use only, reimbursement is taxed as earnings. If business use only or mixed-use, go to stage 3a”.

This, again, contradicts the legislation, which does not distinguish between wholly private use, mixed business and private use and wholly business use for the purpose of calculating the BIK charge on company cars.

Interestingly, October 2023’s Employer Bulletin makes no mention of the exemption not applying for wholly private use.

Charge it back

HMRC has changed the guidance, but this is not a change to the 20-year-old legislation. Taxpayers who have diligently followed the guidance in the Employment Income Manual may be entitled to claim overpayment refunds, in some cases sizeable refunds. For example, a company director spending roughly £20 a week charging their Tesla 3 at home could claim just over a thousand pounds a year of reimbursed electricity costs.

Unfortunately for those savvy taxpayers who have been ignoring the guidance and following the legislation all along, all that’s available is the (not inconsequential) satisfaction of proving HMRC wrong.

Replies (20)

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By Coops
13th Oct 2023 15:24

Hi Amy, I found the "flowchart" in EIM23000 to be a little confusing in the case referred to in your article (where the employee charges at home and claims reimbursement from the employer), but I think the intention is that, if it is a company car, then "Stage 1" means that you look at the answers given at Stage 2, and you don't need to consider the later stages.

Stages 3 and 3a only seem to apply if it is the employee's own car.

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Replying to Coops:
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By Amy Chin
13th Oct 2023 19:26

Hi Coops, agreed it is unnecessarily confusing.

Stage 3 of the ‘Flowchart’ under EIM23900 ‘Employee charges car at home: their employer reimburses the electricity costs’ is the question: “What is the car used for?” alongside the advice “If private use only, reimbursement is taxed as earnings. If business use only or mixed-use, go to stage 3a”. The corresponding guidance for employer-owned cars is, as you correctly point out, at Stage 2 of the flowchart. Stage 2 says “What is the car used for?” And then if the answer is “Business and private mileage.” the “Outcome” is no tax charge. The (incorrect) implication - as I interpret it - is that if there is private use only the reimbursement will be taxed as earnings.

Thanks (1)
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By Merseyside Mike
14th Oct 2023 10:16

It is still unclear whether reimbursement of an employee charging at a public charging point (for business and private use) is recoverable. HMRC allow it if the employer provides a "charge card" for public charging, but they are silent on reimbursement if the employee pays, or if the company credit card is used. Surely the cost of the electricity should be recoverable irrespective of the method of payment?

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By richard thomas
15th Oct 2023 10:44

The problem with EIM23900 is the disjunction between the flowchart itself and the text in the manual page with its enumeration of stages.

The flowchart is both correct and easy to follow.

The problems with the text are that:

1. As has been pointed out, Stage 3 is not applicable in the scenario mentioned by Amy in the post, as it only applies where the car is the employee’s (see bottom half of the spreadsheet).

2. Stage 2 is not required as the exemption applies whatever the use made of the car, as is shown on the top part of the flowchart. But as there has always been a stage 2 I can see why HMRC would not have wanted to excise it altogether. It may be that the words “Business and private” are intended to imply that it is immaterial whether there is business usage or not, but an equally valid reading, the one that struck me as correct on first reading and is the one Amy refers to in her reply above, was that there has to be some business mileage, which is not correct, and is not what is shown on the flowchart.

What the text at stage two should say is “Business or private or mixed”, or just leave out the first sentence.

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Replying to richard thomas:
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By Coops
15th Oct 2023 15:15

Thank you Richard.

The position is certainly clearer from the flowchart diagrams. I had previously encountered a bit of a technological problem in opening these, and had assumed that the text itself was intended to be the flowchart, hence the quotation marks in my earlier reply.

This is possibly one for the "Any answers" section rather than here, but can I check whether the new guidance also applies to "plug-in hybrid"cars? My understanding is that it doesn't, as section 149(4) ITEPA 2003 only excludes electrical energy from the definition of "fuel" in cases where the car has no CO2 emissions, which I understand will not be the case for hybrid cars.

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Replying to Coops:
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By richard thomas
15th Oct 2023 15:43

That seems to be correct on a first glance at s 149 and 239 taken together.

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By petestar1969
16th Oct 2023 09:50

Hmm, but how do you work out how much of your electric bill is for charging the expensive milk float?

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By John Downes
16th Oct 2023 09:58

"Electric cars are becoming ever more popular"
Are you quite sure about that?

Thanks (2)
Replying to John Downes:
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By BrianL
16th Oct 2023 10:35

Taking the SMMT data for 2019 to 2022 (4 full years) the INCREASE in the number of new electric cars registered per year has been, to a first approximation, linear at about 76,000. So Amy's statement is correct.

Thanks (4)
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By whopkinscom
16th Oct 2023 10:18

"The legislation goes on to say that this exemption does not apply to car fuel.

Until now, the guidance in the Employment Income Manual (EIM23900) has contradicted the legislation in advising that if an employer reimburses an employee for charging their car at home this would be a taxable benefit."

How is electricity not a fuel?

Thanks (1)
Replying to whopkinscom:
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By Merseyside Mike
16th Oct 2023 17:34

whopkinscom wrote:

How is electricity not a fuel?

Section 149 - ITEPA - Benefit of car fuel treated as earnings

(4) 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.

According to the legislation therefore, any energy for a car which cannot emit CO2 by being driven is not fuel...

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By richards1
16th Oct 2023 10:28

If the employee claims business mileage surely thats the end of it. Then there is no need to reimburse electricity.

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By richard.snape
16th Oct 2023 13:02

If the empolyer does not reimburse the cost of charging a company electric car, can the employee claim a deduction for that cost?

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By clark.hall
16th Oct 2023 13:53

Seems to me that there's been a reluctance from HMRC to authorise BIK-free charging at home or at public chargers because these cars are only subject to Car Benefit, not Fuel Benefit.

So, company car, all costs inc charging incurred by the company - and whole thing used 100% personally. What do HMRC get -just 2% Car Benefit!

That must sting.

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Replying to clark.hall:
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By Ian McTernan CTA
17th Oct 2023 18:15

It's increasing by 1% increments per year...by 2027/28 it will be 5%.

I suspect it will be jumping up after enough people have them..together with road pricing to replace the loss of revenue from petrol and diesel.

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Replying to Ian McTernan CTA:
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By Markcairns67
18th Oct 2023 10:37

There's no way any government will get away with road-pricing in the UK. Like always, we'll get a fudge that is both inefficient, complex and doesn't achieve the intended objective.

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Replying to Ian McTernan CTA:
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By Markcairns67
18th Oct 2023 10:37

There's no way any government will get away with road-pricing in the UK. Like always, we'll get a fudge that is inefficient, complex and doesn't achieve the intended objective.

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By Lucero79
18th Oct 2023 10:30

Just so I'm clear then, a director of a company could:
1. Claim the 10ppm Advisory Fuel Rate for electric cars
2. Claim charging at home costs
2a. How do you work out what has been used solely for charging the vehicle, as even under certain EV tariffs, the house overnight (for example) is sill consuming "standby" power.

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Replying to Lucero79:
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By Markcairns67
18th Oct 2023 10:41

The vast majority of modern cars and dedicated home-chargers will give you the exact kWh used for charging the car and the time periods involved.

Apply your elec tariff to the above and you've got the number you want. If you're on one of those ultra flexible tariffs (like the ones offered by Octopus that vary rates every hour) then your smart meter app will give you the data required.

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By [email protected]
23rd Apr 2024 15:56

Six months on and and "Check if you need to pay tax for charging an employee’s electric car" has still not been updated, creating much confusion...

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