Tax Benefits of an Electric Vehicle

Did you know that starting in 2030, Electric Car Tax Benefits will complement the UK government’s plan to ban the sale of new petrol and diesel cars to help reduce CO2 emissions and tackle climate change? This move is expected to significantly affect vehicle excise duty and company car tax policies. As a result, the UK tax regime for cars has been designed to encourage the use of electric vehicles (EVs) by employees and businesses. By switching to an EV, you could benefit from a range of tax benefits, including capital allowances and exemptions from certain types of vehicle excise duty.

How to Increase Savings with an Electric Car: A Tax-Efficient Benefit


The taxable benefit arising on petrol and diesel company cars can be up to 37% of the list price of the car and if your employer provides you with a taxable benefit, such as a company car, you would need to pay income tax on the highest slice of your taxable income (currently 20%/40%/45%). For higher earners, this can be a very expensive company benefit! However, if you switch to a fully electric company car, you may be eligible for a lower tax rate, which currently sits at just 2% of the car’s list price. The Government has already confirmed that this 2% rate will be frozen until the 2024-25 tax year. This is a much more tax-efficient option for you, and it can also reduce your employer’s class 1A national insurance bill each year.

Note: All benefits in kind provided to employees need to be reported to HMRC on a form P11d by 6 July each year. It is also now possible to tax some benefits in kind via the employer’s payroll.


Benefit-in-Kind (BIK) Tax Relief for Electric Vehicles


If you’re provided with a fully electric company van, you won’t need to pay any benefit in kind. However, the £nil benefit in kind still needs to be reported to HMRC on the employee’s form P11d. Similarly, if you use an electric bicycle that qualifies for the Cycle to Work Scheme (top speed of 15.5mph and the power of the electric motor is less than 250w), you won’t need to pay any benefit in kind, and nothing needs to be reported to HMRC. This is a very valuable road tax incentive for electric vehicle owners and companies, especially when considering the capital allowance benefits for such vehicles. You still have to pay taxes as an EV driver, but fortunately at a lower rate than with a petrol or diesel vehicle.


Workplace EV charging


If your employer provides a free-to-use EV charging point at or near the business premises, you won’t need to pay any taxable benefit as long as it’s available to all employees. However, the tax treatment of EV charger installation and charging at an employee’s home can be complicated and depends on many different factors, so we recommend speaking to us to discuss your specific scenario so that we can provide you with tailored tax advice on the subject.

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Disclaimer: The tax rates and reliefs mentioned in this blog were correct at the time of posting (May 2023) and have not been updated for any future changes in tax law or HMRC practice. The contents of this blog have been produced as a helpful reference point and the information provided should be used as a guide only.  Before taking action based on the information in this blog, especially regarding electric car tax benefits, it’s advisable to discuss your specific circumstances directly with us.