Electric car tax
Electric vehicles are an increasingly common sight on the UK roads. Our figures show that there are more than 70,000 battery electric and plug-in hybrid cars now registered in the UK with many more forecast for 2016 and 2017 as more models come onto the market.
UK sales of these electric cars have been boosted by the Plug-in Car and Van Grants and favourable tax incentives. This guide provides an overview of tax for electric cars and electric company car tax in the UK. It also highlights the potential savings drivers of electric vehicles can expect as compared to driving a conventional petrol or diesel car.
Electric car road tax
Car tax, sometimes referred to as ‘road tax’ and officially termed Vehicle Excise Duty (VED) is, for vehicles registered since March 2001, based on a car’s official tail-pipe CO2 emissions. For cars registered before March 2001, car tax is based on engine size.
Since 1st March 2001, car tax rates have been based first on seven, and now thirteen VED bands (A to M), similar to the system used for rating the energy efficiency of electrical appliances. Each band represents a range of tail-pipe CO2 emission determined on the official NEDC test cycle.
Since the CO2 emissions associated with electric and plug-in hybrid vehicles are either zero or well under 100 g/km, all models are currently categorised in VED band A (<100 g/km CO2) and thus are zero-rated for standard rate car tax.
Additionally electric cars are zero-rated for first year car tax which currently penalises new cars with emissions over 130 g/km CO2.
Since October 2014, car drivers are no longer required to display a car tax disc on their windscreen, instead paying vehicle tax online. While electric vehicles are zero-rated for car tax, it is worth noting that EVs still need to be annually tax-registered either online, at a Post Office or by phone.
Use the car tax calculator to calculate the car tax due for any electric vehicle.
Electric company car tax
The amount of company car tax payable depends on the official value of the car (called the P11D), the Benefit-in-Kind (BIK) rate and the recipient’s tax code.
Like car tax (VED), company car tax is based on the car’s tail-pipe CO2 emissions as part of the UK Government’s policy to encourage the adoption of low emission vehicles. For company car tax purposes, cars are grouped according to CO2 emissions into banded tax brackets. Each band determines the applicable BIK rate which currently ranges from 7% to 37%.
Currently, all battery electric vehicles have a BIK rate of 7%, increasing to 9% in April 2017. The majority of plug-in hybrid electric vehicles have emissions below 50 g/km CO2 and currently have the same BIK rates as pure-EVs. Those with CO2 emissions between 51-75 g/km are currently rated at 11%, rising to 13% next financial year.
Use the company car tax calculator to calculate the company car tax due for any electric vehicle.
Electric Car Capital Allowances
Capital allowances allow businesses to deduct the cost of an eligible expense from its annual tax bill. As with car tax and company car tax, the rate at which a company can ‘write down’ the value of company vehicles is based on its CO2 emissions.
Battery electric and plug-in hybrid vehicles with CO2 emissions below 95 g/km are currently eligible for 100% write-down in the first year. This Enhanced Capital Allowance (ECA) applies up to the end of March 2018. To qualify, the vehicle must be brand new, and the purchase must be made before 31 March 2018. From April 2018, the ECA threshold will decrease to 75 g/km CO2.
Compared to the standard relief on vehicles of 18% per annum (on a reducing balance basis for cars with CO2 emissions of 96-130 g/km), the 100% write-down represents a cost benefit to company owned EVs worth between £1,000 and £3,000 over four years (equivalent to 7%-10% of an EV's OTR price).
Note: this EV benefit no longer applies to rental and hire companies (including car clubs) which makes vehicles available for short-term hire. In Budget 2015, the Chancellor also extended the ECA for zero emission goods vehicles to 31 March 2018, but to comply with EU state aid rules, the availability of the ECA will be limited to businesses that do not claim the Government’s Plug-in Van Grant.
|Capital allowance rates||Allocation||CO2 (g/km)
until end Mar 2013
April 2013-Mar 2015
April 2015-Mar 2018
|100% (first-year)||Main rate pool||up to 110 g/km||up to 95 g/km||up to 75 g/km|
|18% annual||Main rate pool||111-160 g/km||96-130 g/km||tbc|
|8% annual||Special rate pool||over 160 g/km||over 130 g/km||tbc|
Other electric car tax benefits
Aside from the electric car tax benefits outlined above there are further financial incentives associated with driving an electric vehicle. A brief overview of these benefits are laid out below.
Congestion Charge: Drivers who find themselves requiring access to the London Congestion Charge Zone in an electric vehicle can save £11.50 per day.
Running Costs: Fuel costs can be as low as 3 pence per mile. Based on an annual mileage of 10,000 per annum, switching to electric could therefore save around £800 a year in fuel bills.
National Insurance: As Class 1 National Insurance Contributions (NICs) for company cars are based on official CO2 figures, employers who provide low emissions electric and plug-in hybrid vehicles to employees pay less NICs.
Plug-in Car and Van Grant: The Plug-In Car and Van Grants subsidise the purchase of eligible cars by up to £4,500 for EVs and £2,500 for PHEVs; vans recieve up to £8,000.