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Green incentives to retain and reward your staff - Katie Williams of Hazlewoods Tax

By Katie Williams, director at Hazlewoods 

Green travel incentives for employees

For most businesses, the 'green agenda' is becoming a higher priority as companies look to play their part in helping to reduce the carbon footprint.

One area that can help towards this objective is to promote and provide access to more eco-friendly transport. We have set out below some of the top green travel benefits linked to commuting and business travel that employers can offer their staff, in a tax efficient manner:

Electric vehicles

Pure electric cars are not only eco-friendly but are also a very tax efficient benefit for employees, particularly compared to a petrol or diesel alternative. Providing an employee with a company car, that is available for their private use, gives rise to a taxable benefit in kind for the employee, but electric company cars are currently only subject to tax on the employee at a rate of two per cent of the vehicle's list price.

For example, a new electric car costing £35,000 would have a taxable benefit of £700 for 2022/23 which would equate to an annual tax charge of £280 for a higher rate taxpayer and £140 for a basic rate taxpayer. No NIC is payable by the employee but the employer will be subject to Class 1A NIC at a rate of 15.05% (for 2022/23) of the benefit value. The full expense of the car can also normally be claimed by the employer in the year of purchase.

Unlike with a conventional company car, no fuel benefit arises on an electric car and the provision of a charging point at work is also tax free providing it is generally available to all employees, as is the installation of a charging point at an employee's home, for an electric company car user.

Finally, electric vans are another great option and, unlike cars, are not treated as a taxable benefit where there is some 'incidental' private use, including commuting to work.

Cycle to work scheme

As part of the Government's green transport plan to promote healthy journeys and reduce pollution, the cycle to work scheme allows employers to provide employees with bicycles and bicycle equipment as a tax-free benefit.

There is no limit to the total value of the bicycle and equipment but employers typically cap this at £1,000 (including VAT), otherwise it is necessary to apply for a consumer credit licence.

Certain conditions must be met to qualify for the cycle to work scheme, including that the bike must be mainly used for qualifying journeys (e.g. travel to work) and ownership must not be transferred to the employee during the loan period. The scheme must also be generally available to all employees.

The company can also normally claim a full deduction for the cost of the bicycle and equipment in the year of purchase.

Season tickets and loans for public transport

Offering discounted season tickets and loans for public transport can help to encourage employees to look at options for sustainable travel and commuting. Where a loan is provided to an employee to purchase a season ticket, there are no tax or NIC consequences as long as the total loan is below £10,000.

If employees are provided with a season ticket or vouchers to purchase a season ticket this will, however, be treated as a taxable benefit and reporting obligations will apply. Similarly, if the employee is reimbursed for a season ticket, they have purchased then tax, NIC and reporting requirements arise.

Business mileage

Reimbursement for mileage to clients or other business-related meetings is generally tax-free for the employee providing it does not exceed agreed HMRC rates.

If the employee travels in their own car they can be reimbursed up to 45p per mile for the first 10,000 business miles in the tax year and 25p thereafter. These rates also apply to electric cars. For business mileage in a van an employee can be reimbursed up to 24p per business mile and 20p for bicycles.

Further, as an added incentive to be green and car share where possible, an additional 5p per business mile can be claimed for each passenger accompanying the driver, providing it is also a work-related journey for them.

The reimbursement for company car business mileage is updated by HMRC quarterly and is dependent on the type of vehicle and engine size. The approved rate for electric company cars is currently 5p per business mile.

If you would like further help and advice regarding green travel incentives for employees, please contact Katie Williams at katie.williams@hazlewoods.co.uk.

For Hazlewoods expert advice for individuals and businesses, visit their dedicated tax webpage here.

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