Recent changes to HM Revenue & Customs’ (HMRC) Employment Income Manual have substantial implications for companies and employees who use company cars, specifically electric vehicles (EVs).
The revised guidelines are now aligned with existing legislation, particularly Section 239 of the Income Tax (Earnings and Pensions) Act 2003 – stating that reimbursements for spending related to a taxable car or van are not subject to Income Tax.
Before the update, the manual incorrectly stated that reimbursements from employers to employees for home charging of electric cars would be treated as a taxable benefit-in-kind (BIK).
This has now been corrected.
According to Section 239, the cost of domestic electricity used for recharging a company vehicle at home does qualify for exemption.
Therefore, if the reimbursed electricity is used exclusively for this purpose, it will not generate a tax liability.
Debating the new guidance
It is important to highlight a contentious issue within the revised guidelines.
The update suggests that, if a vehicle is exclusively for personal use, the reimbursement for home charging should be taxed as income.
This stands in conflict with the original legislation, which refrains from making such distinctions based on how the vehicle is used – whether wholly for private purposes, a mixture of private and business, or exclusively for business.
Given this ambiguity, it’s wise to watch for additional clarification from HMRC.
Can I claim tax refunds?
For those who were adhering to the old guidance, there’s a silver lining.
You may be eligible to claim refunds for tax overpayments, which could be considerable in some instances.
For example, a director incurring costs of about £20 per week for home EV charging could potentially reclaim upwards of £1,000 annually in reimbursed electricity expenses.
While the updated HMRC guidance clarifies certain aspects, it also introduces a point of confusion that contradicts existing legislation.
Therefore, it’s crucial to revisit your company’s existing reimbursement policy as it relates to electric car charging to ensure they comply with the latest guidelines.
This also presents an ideal opportunity to engage your tax adviser in evaluating the ramifications of these changes on your overall tax situation and making any adjustments.