Is it a case of out with the old & in with the new as electric vehicles become increasingly popular?
Whilst we are all aware of the environmental benefits of going electric, we may not be as familiar with what going electric may mean from a tax saving perspective. Here we take a brief look at the tax advantages and how the system will deal with electric vehicles.
Under the current system, employees who have the use of a company car for private use outside of work are subject to tax under the Benefit in Kind system. The tax liability is based on a number of factors which include the original market value of the car, the business mileage travelled on an annual basis and the emission rating of the car.
Benefit in Kind Exemption (BIK)
With effect from 1st January 2018 if an employee uses an electric company car, no charge to tax will arise in respect of private use of this vehicle by the employee. This exemption is for cars that get their motive power from electricity only. It is not available for hybrid engine cars. This exemption applies to new and used electric company cars. This exemption only applies where ownership of the car does not transfer to the employee (normal BIK rules apply). The benefit-in-kind provisions apply both to directors and to other employees, irrespective of the level of emoluments from the office or employment. The BIK exemption also covers employees charging the car at their workplace.
The Government Incentive
A maximum grant of €3,800 is available for a qualifying electric vehicle when purchased commercially. This relates to purchases made by a commercial or public entity. Approved electric vehicles with a list price of less than €14,000, however will not receive a grant. The grant level depends on the list price of the vehicle. This is the full non-discounted price in the absence of VRT relief or grant support.
The Accelerated Capital Allowance Scheme
This permits a write-off of capital investment within one year. The Accelerated Capital Allowance (ACA) is a tax incentive which aims to encourage business owners to invest in energy saving technology. The ACA is based on the existing Capital Allowance tax structure for plant and machinery and is only applicable to eligible energy efficient equipment.
With the existing Capital Allowances Tax structure, when money is spent on capital equipment, companies can deduct the cost of this equipment from their profits proportionally over a period of 8 years. Therefore, the annual taxable profit is only reduced by 1/8th of the total equipment cost. With the new Accelerated Capital Allowance, when money is spent on eligible energy efficient capital equipment, the company can deduct the full cost of this equipment from their profits in the year of purchase only. The taxable profit in year one is reduced by the full cost of the equipment. The ACA benefits you in one year by, reducing your tax bill and increasing your cash flow. The ACA is available to companies that operate and pay corporation tax in Ireland.
VRT reductions apply to electric vehicles. Commercial vehicles (VRT categories A and B) that are powered only by an electric motor and are registered before 31 December 2021 are eligible for relief from VRT up to a maximum amount of €5,000.
The motor tax on electric vehicles is currently €120 per annum.
