Company car tax on electric cars

Electric cars can save businesses money. There are a number of tax incentives to switch to electric for a company car or as part of a business fleet.

renault kangoo maxi van in grey 1

Introducing electric cars into a business or organisation is no longer just about social responsibility. There are a number of tax benefits to driving an electric car, including some serious financial incentives such as electric car benefit in kind.

As mileage range increases - with many new models offering a range approaching 300 miles, electric cars are better equipped than ever to deal with the needs of most business driving.

The UK government is keen to get companies thinking about the tax benefits of driving an electric car and have put in place a host of incentives to encourage business uptake. More than two thirds of electric cars are registered to businesses on UK roads, as companies begin to wake up to the cost savings they can bring. Electric cars definitely make good business sense as fleet, pool or company vehicles.

Tax on benefits in kind for electric cars

Switching to an electric car can bring significant tax benefits for businesses and this is set to get even better from April 2020. For company car drivers and fleet operators choosing an electric car from April 2020, there will be zero tax on Benefit in Kind (BIK) during 2020 / 2021. This zero rate also applies to hybrid vehicles with emissions from 1 - 50g/km and a pure electric range of over 130 miles.

In fact there are now 11 new tax bands for vehicles with emissions of 75g/km and below, some of which are linked to the electric mile range that the vehicle offers. So if you’re thinking of choosing a hybrid vehicle for your business then it’s worth investigating electric car benefit in kind 2020 before you choose.

The government has also announced the tax rate for the next three years, helping businesses to plan ahead. The electric car tax on benefit in kind rate will increase to 1% in 2021 / 2022 and 2% in 2022 / 2023.

As an example, take the new e-Golf and compare this to the Golf GT Petrol 1.5:

Woman about to charge a vw e-golf

 

 2020 - 20212021 - 20222022 - 2023
e-Golf (BIK per year)£0.00£55.20£110.30
Golf GT Petrol 1.5 (BIK per year)£1,392£1,392£1,392

 

Company car tax liabilities on petrol and diesel cars have grown significantly over the last 6 years. A typical business driver could be spending between £300 - £400 a month (for a 40% taxpayer).  If the upfront cost of an electric car works for the business buyer then the tax breaks will speak for themselves over the lifetime of the car.

Harvey Perkins, employment tax advisors, HRUX

Tax credits for electric cars

electric car green CO2 emissions for tax benefits

Capital allowances on electric cars

Cars with CO2 emissions of less than 50g/km are also eligible for 100% first year capital allowances. This means with electric cars, you can deduct the full cost from your pre-tax profits.

On a car costing around £40,000 this could amount to a tax relief of £7,600 in the first year.

Electric cars exempt from London Congestion Charge

Congestion charge exemptions

Don’t forget electric cars are also exempt from the congestion charge tax. So, if your company cars are travelling in areas where clean air zones exist or are about to be introduced, then this also adds to the tax savings of electric driving over the year.

The current congestion tax in London costs £11.50 per day per vehicle between 07:00 and 18:00, Monday to Friday.

vehicle road tax reminder letter

Road tax on electric cars

Now that vehicle road tax is based on carbon dioxide emissions, pure electric cars are exempt from first year road tax meaning it’s free to tax them.

All cars registered 1st March 2001 and 31st March 2017, with CO2 emissions less than 100 g/km, are not subject to road tax.

For all cars registered on or after 1st April 2017 the tax bands have changed. Fully electric cars have no tailpipe emissions and are therefore still exempt from road tax. However, some plug-in hybrid electric cars with CO2 emissions less than 100 g/km, may need to pay anything from £0-£135 per year depending on the levels of CO2 emissions.

One thing that many people are not aware of is that all cars registered on or after 1st April 2017 and cost over £40,000, are still liable to pay an additional road tax charge. Electric cars that fall into this category will have to pay £350 per year road tax for the first five years, compared to £455 for petrol and diesel cars registered in the same period.

Charging vs fuel tax benefit

Electric charged cars vs petrol fuel cars

At a time when rising fuel costs can put a financial strain on many residential and business drivers, the lower cost of running an electric car is one of the main incentives to make the switch to electricity insteaad of fuel.

The benefit of switching electricity means that domestic electric car users only pay 5% in tax. Business users are required to pay 20% tax on electricity in the same way as fuel at the pump, however there is no fuel duty tax on electricity like there is for petrol and diesel, which currently sits around 58p per litre.

With electricity costs averaging at just 3.9p a mile to power a Nissan LEAF, compared to an average of 9.2p per mile on a Ford Fiesta, the savings for those travelling longer distances can be significant. If charging at work, this could bring the cost down even further.

Did you know?: The average company car driver, travelling 17,500 miles a year could save over £1,000 each year by switching to an electric car(1).

Workplace charging tax exemptions

Work place electric car charge point office parking

One of the actions in place to persuade employers to provide charging facilities for all-electric and plug-in hybrid vehicles at the workplace is to exempt employer provided electricity from being taxed as a benefit-in-kind.

There are some conditions that need to be met in order to for an employer to qualify:

  • Electricity must be provided via a dedicated charge point
  • The charging facilities must be provided at or near the workplace
  • Charging must be available to either all employees or all the employer’s employees at a particular location


This guidance will be of interest to employers that provide taxable benefits to employees and provide electric charging points for employee use.

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