The chancellor Alistair Darling has confirmed he is giving company drivers of electric cars and vans a five-year holiday from Benefit-in-Kind tax.
According to company car tax expert at Pricewaterhouse Coopers, Gary Hull, this means cars solely propelled by electricity will be free from Income Tax and National Insurance contributions for a five-year period from 6 April 2010.
This will save employees and employers.
A 20% tax payer who starts driving a company-provided £20,000 electric car will save £264 a year - almost the equivalent of a £500 pay rise.
The employer will save around £200 a year.
"This may encourage employers to consider the provision of electricity-propelled vehicles for low-mileage drivers and also as pool cars for local business journeys," said Hull.
"There will be no need to keep detailed business mileage records to demonstrate that only limited private use has been undertaken."
Other changes announced in the PBR mean drivers of electric vans will also get a similar five-year holiday.
In addition, the chancellor has introduced a 100% first-year allowance to encourage more fleets to buy electric vans.
Currently company drivers of electric cars face a 9% BiK bill, which is the lowest band.
The incentive is designed to get more companies to put electric vehicles on to their fleets.
The moves confirm the Government’s intention to encourage the rapid adoption of electric vehicle technology by companies.
“This is a strong signal to business through the tax system and should make a difference," explained Will Bush, tax partner at Ernst Young.
"In particular it will reduce the cost of an important element of the low carbon transformation, which is already underway in a number of large UK businesses.
“However, while it is encouraging that the chancellor is supporting green technologies in the automotive industry, the small package of tax measures is only aimed at wholly electrical vehicles."
Earlier this year the Government announced a financial incentive of up to £5,000 off the list price of a new electric car from 2011/12.
The latest announcement has been welcomed by the fleet industry.
“We are really pleased that the chancellor has listened to our call to modernise the business tax regime and give a clear, long-term incentive for companies willing to be early adopters of electric cars and vans,” said John Lewis chief executive of the BVRLA.
“Together with the £2,500 - £5,000 incentive the government is planning to introduce from 2011 for people buying ultra-low carbon cars, these new measures will help speed-up the mass market adoption of sustainable road transport in Britain.
"We believe business users will be at the forefront.”
Motoring organisations have also added their voice of approval.
“The incentive for companies to go electrify their car fleets is to be welcomed as this will help provide a mass market for low-carbon vehicles and encourage a charging infrastructure to be established," said the director of the RAC Foundation Professor Stephen Glaister.
Further tax breaks for company electric vehicles were also announced in today's PBR, including the introduction of a 100% Writing Down Allowance for electric vans.
Go to our dedicated PBR site for more details.
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