The recent update to HM Revenue & Customs’ (HMRC) Employment Income Manual is a significant development for businesses and employees utilising 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, which 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 this purpose, there will be no tax liability.
A point of contention in the updated guidance
However, it’s crucial to note a new, somewhat contentious, point in the updated guidance.
It suggests that if a 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 makes no such distinction based on the usage of the car – be it wholly private, mixed business and private, or wholly business.
This could potentially lead to complications and it’s 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
The updated HMRC guidance brings much-needed clarity but also introduces a point of contention that contradicts existing legislation.
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.
This is an opportune moment to consult with your tax adviser to assess the impact of these changes on your tax position and take any necessary corrective actions.
Your tax adviser could help you streamline your tax efficiency and strengthen your reimbursement policies. Get in touch today to see how we can help you and your business.