A recent update to HM Revenue & Customs’ (HMRC) Employment Income Manual is a significant development for businesses and employees using company cars, particularly electric vehicles (EVs).
The revised guidance now aligns with existing legislation, specifically, Section 239 of the Income Tax (Earnings and Pensions) Act 2003. This states that reimbursements for expenses incurred in connection with a taxable car or van are not subject to Income Tax.
The impact of Section 239
Previously, the manual incorrectly advised that if an employer reimbursed an employee for the cost of charging an electric car at home, it would be considered a taxable benefit in kind (BIK). This has now been rectified.
The exemption under Section 239 does apply to the cost of domestic electricity used for charging a company car at home.
Therefore, if the electricity reimbursed is solely used for charging a company car, there will be no tax liability.
A point of contention in the updated guidance
It’s crucial to note a new point in the updated guidance, which suggests that if a company car is used solely for private purposes, the reimbursement for home charging should be taxed as earnings.
This is in direct contradiction with the legislation, which does not distinguish between the usage of the vehicle when calculating the benefit in kind charge on company cars.
It is therefore advisable to keep an eye on any further clarifications from HMRC on this matter and discuss these issues with your accountant.
Opportunity for overpayment refunds
For those who have been following the old guidance, there’s good news! You may be entitled to claim tax overpayment refunds, which could be substantial in some cases.
For instance, a director spending approximately £20 per week on charging an EV at home could claim just over a thousand pounds a year in reimbursed electricity costs.
What to do next
It’s essential to review your current reimbursement policies for electric vehicle charging to ensure they are in line with the new guidance, while also being prepared for potential future amendments.
Your tax adviser can assess the impact of these changes on your tax position and help you take any necessary corrective action.