Fleet navigates EV tax minefield with help of consultancy

Fleets deploying fully electric cars but with back-up petrol or diesels for longer journeys are being warned of a tax minefield that could see additional BiK charges for drivers.

Drivers keeping their electric car on the drive and borrowing a petrol pool car for the weekend would be subject to a tax charge on the petrol car as well as the main car

The warning comes from tax consultancy firm Innovation Professional Services, which has helped an unnamed fleet to deploy electric cars but avoid secondary tax charges related to their running due to ad-hoc alternative car use.

With many fleets now looking into fully electric cars as a result of increased tax efficiency – 0% Benefit-in-Kind tax in 2020/21, 1% for 2021/22 and 2% the year after – it’s vital to ensure that vehicles are deployed for those drivers where the range fits in with their business use.

As part of its work to help employers make the shift to EVs, Innovation offers its Traxmiles mileage system to identify every employees’ driving patterns, including business and private split.

This includes one client where a number of drivers were identified who did many small business trips and for whom electric cars would be ideal for business use.

However, some of the drivers had weekend breaks in the UK or hobbies that took them far afield at weekends and the only way to enable those drivers to go electric was to allow them use of an alternative car, e.g. pool or hire car, for occasions requiring a vehicle with a longer range.

And it’s this area where Innovation warns that the tax law in this area is a minefield and could see drivers liable to a second or even multiple tax charges.

Section 145 Income Tax (Earnings and Pensions) Act 2003 states that if you have a temporary replacement car whilst yours is not available, then provided the replacement car is given for less than 30 days and is not materially better than your normal company car, then you can ignore the replacement car and just report the normal electric car for 365 days.

But crucial to this is the fact that the normal car must not actually be available during this time. So drivers keeping their electric car on the drive and borrowing a petrol pool car for the weekend would be subject to a tax charge on the petrol car as well as the main car.

Innovation’s work with its client saw it navigate this minefield, rewording their car policy and putting in place measures to ensure beyond doubt that only one car was available at a time – crucially ensuing that the measures were in writing.

John Messore, joint managing director at Innovation, said: “We have read enough tax cases to know that if there were a dispute and you went to court then the judges will not always take verbal evidence at face value. By having something in writing that makes clear the electric car was not available on those dates will afford you greater protection. Net result was a happy client today, rather than an unhappy client in court tomorrow.

“The moral of the story is always talk to an expert first, even when doing something as simple as rolling out a few new electric cars.”