Our tax experts answer some of the most frequently asked questions received from clients about electric vehicle tax in the UK.
Contemplating making the switch from fuel to electric? Electric vehicles (EV) come with a range of tax benefits, which are aimed at incentivising taxpayers to make the move to zero and low emission vehicles.
If you are considering purchasing an electric vehicle, either for personal or company use, this article contains all the information you need to know on the tax implications.
Is there company car tax on electric cars?
Yes, there is company car tax on electric cars but it is substantially lower than the tax on a petrol or diesel car. The company car tax rate or benefit-in-kind (BiK) for pure electric vehicles is 2% of the vehicle’s list price when new (which includes VAT, delivery, and all accessories/additions). This 2% rate is fixed until April 2025.
Hybrid vehicles are not eligible for the same deductions in company car tax, however they still have a reduced BiK rate. The BiK rate is calculated according to CO2 emissions, and the electric range, which means owners of hybrid cars will pay less tax than those with standard fuel cars.
|Benefit-in-kind for electric vehicles registered after 6th April 2020||2022-23||2023-24||2024-25|
|Pure electric cars
1-50g/km (electric range over 130 miles)
1-50g/km (electric range 70-129 miles)
1-50g/km (electric range 40-69 miles)
1-50g/km (electric range 30-39 miles)
1-50g/km (electric range less than 30 miles)
From April 2025, this rate will rise to 3% and continue rising by 1% each year (4% in 2026/2027, 5% in 2027/2028). Although the rate is set to increase, it will remain significantly lower than the rates for non-electric vehicles.
Are EV salary sacrifice schemes worth it?
An electric vehicle salary sacrifice scheme enables your employees to contractually give up some of their salary in return for receiving an electric company car that they would not otherwise be entitled to. It works in the same way as any other salary sacrifice scheme, such as pension contributions and cycle to work schemes. All salary sacrifice arrangements must be carefully managed and structured to meet HMRC’s requirements.
The car salary sacrifice arrangement offers a range of benefits for both employers and employees.
Benefits for employers include:
- Cost savings from lower Employer NI contributions as the savings on the Class 1 Employer NIC are greater than the Class 1A NIC on the low car benefit declared on P11D
- An attractive employee benefit can have a positive impact on staff retention and recruitment
- It boosts your sustainability credentials and demonstrates your commitment to a greener future
Benefits for employees include:
- The opportunity to lease an electric car without the upfront cost of a deposit
- Lower monthly payments than would be available through other types of finance
- Tax and NIC savings – the monthly salary sacrifice payments are deducted from your gross salary, which reduces the amount of Income Tax and NIC you have to pay as these taxes are calculated according to your post-deduction salary
- The electric company car will be taxed on you as a benefit in kind (BiK), but as the BiK charge is significantly less than the salary sacrifice, overall, you have a lower tax liability
- Depending on the arrangement, it may cover others costs such as servicing, maintenance, repair, breakdown, insurance and road tax
It should be noted that under the salary sacrifice legislation, the company car must be fully electric or have CO2 emissions of less than 75g/km and an electric range of 130 miles or more. If the car does not meet these conditions, the salary sacrifice will fall under Optional Remuneration Arrangement (OpRA) rules, which means that the higher of the salary sacrifice or the BiK calculation for the car is regarded to be BiK for P11D purposes. This means that any tax/NIC advantage is lost, apart from employee NIC.
If you are an employer, there are several factors you should take into account when implementing a salary sacrifice scheme. It is important to consider the increased impact of having a larger fleet of company vehicles, what happens if an employee leaves your employment part way through the term of the arrangement, and what happens if the car is damaged or undertakes significantly higher mileage than agreed in the terms of the lease.
What are the electric vehicle mileage rates?
If your employee uses an electric company car for business travel, the allowance per mile is substantially lower than it is for other types of car. As of 1st March 2023, the Advisory Electricity Rate (AER) for an electric company car is 9p per mile.
Hybrid cars are subject to the same Advisory Fuel Rates (AFR) as petrol and diesel cars, which are dependent on the vehicle’s engine size. HMRC publishes a new list of AFR on a quarterly basis.
If an employee has their own private electric vehicle that they are using for business travel, the HMRC Approved Mileage Allowance Payment (AMAPP) rates apply (45p per mile for the first 10,000 miles, then 25p per mile after that) for business miles travelled, subject to mileage records being held to verify the business journey undertaken.
If an employee is provided with an electric van that does not produce any CO2 emissions, there is no taxable BiK charge, even if the van is used extensively for private use as well as business journeys. There is also no taxable fuel benefit charge.
Information on electric charge points
Grants and cost incentives for employers
SMEs in the UK with no more than 249 employees can claim up to 75% of the installation costs for electric charge points from the EV infrastructure grant. The grant limit is £15,000.
The voucher-based Workplace Charging Scheme (WCS) is another source of support available to eligible businesses, charities and public sector organisations. This grant covers up to 75% of total costs on purchase and installation of EV charging points (inclusive of VAT), and can be used on the same site as the EV infrastructure grant but not the same charge points.
There are a number of other grants associated with the installation of electric charge points – a full list can be viewed on the Government website.
Onsite versus offsite charging
If you install electric charge points at your workplace for employees to use, your employees can charge both private and company vehicles without incurring a BiK tax charge.
This tax exemption covers:
- The cost of electricity used during charges
- The cost of providing the charging facilities
- Any connected services
To be eligible for the exemption, the charge point must be installed at or near your workplace, charging must be available to all employees at your organisation, and the vehicle that is charged must be driven by the employee or they must be a passenger.
From an offsite charging perspective, if the EV is a company vehicle, the employer can meet the cost of charging at a public ‘on road’ charging point and no taxable BiK arises. If the EV is a privately owned car, any employer funded roadside charging will be liable to tax/NI.
For a company owned EV, employers can pay for the installation costs of a charge point at an employee’s house without incurring a taxable benefit. If the employer supplies the electricity directly via a separate meter that is installed and used only by the company car, no taxable BiK will arise. If the employer reimburses the cost of any mixed-use electricity connected to the employee’s home, the reimbursement is likely to be regarded as earnings and a tax/NIC liability will arise.
For a privately owned EV, any employer installation of a charge point or payment for electricity will be liable to tax/NIC.
Are electric vehicles exempt from congestion charge?
Pure electric vehicles and hydrogen fuel-cell vehicles are currently exempt from the congestion charge that operates within London, as well as the Ultra-Low Emission Zone (ULEZ) charge. To be eligible for the 100% discount, you must apply for the Cleaner Vehicle Discount online via the Transport for London website.
The exemption only applies to zero emission cars/vans, therefore hybrid cars are still required to pay congestion charge.
However, from 25th December 2025, the Cleaner Vehicle Discount will expire and all electric vehicles will be required to pay the same congestion charge as standard cars (currently a flat rate of £15 per day).
Enhanced capital allowances
You can claim 100% of the cost of electric cars/vans if they are new and unused, as they qualify for enhanced capital allowances. Additionally, expenditure incurred on electric vehicle charge point equipment qualifies for 100% first year allowance, where this is new and unused. There is a two-year deadline to claim the allowance in line with statutory filing and the relief runs until 31st March 2025 for corporation tax purposes and until 6th April 2025 for income tax purposes.
Capital allowances can be claimed on any cars that you buy and use within your business. The deduction amount will depend on the car’s CO2 emission levels.
If you have any further questions about electric vehicle tax or would like to know more about the tax implications surrounding electric vehicles in the UK, contact us today to discuss your needs with one of our tax experts.