Greening company fleets is one of the main focuses of policies aimed at reducing greenhouse gas emissions. That is why more and more company cars now run on electricity.
Company cars should be distinguished from pool vehicles, which are not treated the same way for tax purposes. Since a pool vehicle is used only for business trips, it falls under business expenses. A company car, on the other hand, can be used for both business and private journeys, so it is a benefit in kind.
What is a benefit in kind?
Governed by French law, a benefit in kind is defined as "the provision of goods or services that allows the employee to save on costs they would normally have had to bear".
There are several types:
- Food.
- Company housing.
- Loan of technology equipment (computer, phone, etc.) for business and private use.
- Price reductions (of more than 30%).
- Company cars.
These are provided free of charge by the employer or in return for a contribution from the employee. However, this contribution must be lower than the actual price of the goods or service.
The terms of application are generally set out in the company's collective agreement or in the employment contract.
As for company cars, providing a 100% electric car is a special case because it gives entitlement to tax advantages.
The tax advantages of electric company vehicles
A benefit in kind is advantageous in many ways. However, it also generates costs, particularly in terms of social security contributions and taxation. These costs are often higher when opting for an electric vehicle (EV). To encourage their use, French law provides for exemptions and tax advantages.
Tax advantages for the company
For the employer, a benefit in kind generates additional social security contributions, as well as costs related to buying, maintaining and using the vehicle.
To offset these costs and encourage the use of clean vehicles, many tax and financial advantages for companies have been introduced:
- Deductible VAT on electricity used for charging.
- Exemption from the taxes on vehicles used for business purposes (formerly TVS): this covers the tax on CO2 emissions and the tax on air pollutant emissions. Applicable to purchases and rentals of more than one month, this exemption is full for electric vehicles and for plug-in hybrids emitting less than 60 g of CO2 per kilometre.
- Lower registration certificate cost: choosing an electric vehicle exempts you from 3 of the 5 taxes that make it up. For a vehicle not intended for transport, it only includes the fixed tax and the delivery fee.
- A higher tax depreciation ceiling: as a deductible expense, it amounts to €30,000 for a car emitting less than 20 g of CO2 per kilometre and €20,300 for a car emitting between 20 and 50 g. For other cars, the ceiling is €9,900 (article 39 of the French General Tax Code).
Tax advantages for the employee
A benefit in kind is a salary supplement. It is therefore subject to the employee's income tax and social security contributions.
However, until 31 December 2024, specific tax advantages for electric vehicles (EVs) reduce these charges:
- The purchase value of the vehicle is reduced by 50% in the calculation of the benefit in kind (capped at €1,800 per year), which lowers the taxable amount.
- Charging costs paid by the employer are exempt from tax and social security contributions.
How do you calculate the benefit in kind for an electric vehicle?
As a form of non-monetary remuneration that the company provides to its employees, the benefit in kind is taxable and must be assessed every year to be included in the employee's income tax.
Its calculation depends on several criteria, including the type of vehicle (electric or plug-in hybrid) and how it was acquired (purchase or rental).
In all cases, companies have 2 options for this calculation:
- Based on actual costs.
- Based on an annual flat rate.
The actual-cost method
The actual-cost method consists of taking into account the costs incurred by the company to calculate the benefit in kind. These costs include maintenance, insurance and depreciation of the vehicle (or its rental cost).
Several points should be considered for a 100% electric vehicle:
- There are no fuel costs, unlike with a plug-in hybrid.
- Electricity costs paid by the employer are not included in the calculation.
- 100% electric cars qualify for a tax allowance of 50% (capped at €1,800 per year).
The calculation with the actual-cost method is therefore made up of:
- the ratio between the mileage driven by the employee for personal use and total mileage;
- depreciation over 5 years, representing 20% of the vehicle's value (10% for vehicles over 5 years old), or the annual rental cost;
- maintenance costs;
- insurance costs.
For example, for a car rented for €5,000 a year, driven 30,000 km over the year, including 18,000 km for private journeys, and costing €1,500 in maintenance and €1,500 in insurance:
- The mileage ratio is 18,000 / 30,000 = 0.6.
- The total costs incurred by the company are 5,000 + 1,500 + 1,500 = €8,000.
- The benefit in kind is 8,000 x 0.6 = €4,800.
- The 50% tax allowance is 50% of €4,800 = €2,400. This is higher than the €1,800 cap.
- The final amount of the benefit in kind is therefore 4,800 - 1,800, i.e. €3,000.
The flat-rate method
The flat-rate method is simpler and consists of applying a fixed percentage to the purchase price or annual rental payments of the vehicle to calculate the benefit in kind.
Here, a distinction is made between vehicles bought and vehicles rented by the company, with or without a purchase option.
So when the employer does not pay the charging costs, the benefit in kind is equal to:
- 9% of the purchase cost incl. VAT for a purchased vehicle. This rate drops to 6% for vehicles over 5 years old;
- 30% of the annual rental cost for a rented vehicle.
But if the employer pays the charging costs, the rate rises:
- to 12% of the purchase cost incl. VAT for a purchased vehicle, and 9% for vehicles over 5 years old;
- to 40% of the annual rental cost for a rented vehicle.
In this case, for a vehicle rented for €12,000 a year with no charging costs paid:
- The rate is 30%, i.e. 12,000 x 30% = €3,600.
- The 50% allowance amounts to €1,800.
- The benefit in kind is therefore 3,600 - 1,800 = €1,800.
What are the advantages for a company of offering an electric vehicle as a benefit in kind?
The electric company car offers many advantages, for both employer and employee.
Financial and tax advantages
As we have seen, choosing an electric company car is advantageous from a financial and tax point of view. Giving entitlement to exemptions and purchase incentives, it is a mode of transport favoured by the French government, which is doing everything to encourage its use.
What's more, switching to electric saves money on fuel (charging, in this case) and maintenance. According to TCO (total cost of ownership) calculations, many electric car models are more cost-effective in the long run than combustion-engine cars.
The technological advantages of electric
If an electric car costs less to maintain, it is simply because it requires less maintenance and repair.
And that is not its only advantage. Equipped with modern features, electric cars are quiet and safe. This comfort is complemented by battery charging times that keep getting shorter with recent technological developments.
Advantages for the ecological transition
Switching to electric mobility is a legal obligation, but it is also a major step forward for a company's ecology and CSR policy.
ADEME (the French agency for ecological transition) estimates that using an electric vehicle with a battery of less than 60 kWh can reduce its carbon footprint by 2 to 3 times.
A significant gesture that the planet will appreciate, as will employees, who are paying increasing attention to the environmental impact of the companies they work for, and who may already drive an electric car themselves. Whether from a financial, ecological or technological point of view, the electric company car looks set to be tomorrow's standard. Although still considered expensive, the various subsidies and tax advantages reduce the purchase cost and the amount of benefit in kind borne by the employee. For both employer and employee, it is a solution that pays off on every level.
