Electric car tax
Thanks to a combination of high customer demand and regulations, electric vehicles have become a familiar sight on UK roads. Having been boosted initally by incentives such as the Plug-in Car Grant and Plug-in Van Grant, additional benefits are available from the government to help get more drivers into electric vehicles.
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 VED
Car tax - officially termed Vehicle Excise Duty (VED) - is based on a car's official tail-pipe CO2 emissions for a first year rate. After the first year, a standard rate applies to all cars, with three core exceptions.
A premium rate is charged for years 2-6 for models costing more than £40,000 when new, whilst alternatively fuelled vehicles - including pure-electric, plug-in hybrid, and hybrid cars - qualify for a £10 Alternative Fuel Discount. Finally, pure-EVs - those with zero-tailpipe emissions - alone qualify for zero VED, including an exemption from the premium rate.
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.
Company car tax is closer aligned to a car's tailpipe emissions than VED, and rates are calculated dependingon which CO2 band the car sits in. The government has looked to encourage adoption of pure-eletric and the most efficient plug-in hybrids by dramatically reducing BIK rates for these models.
Financial Year 2021/22 sees pure-electric models rated at 1% for BIK, and these rates only climb to 2% for FY 22/23 and 23/24. As such, company car drivers can save thousands of pounds a year simply by switching from a diesel model to an EV.
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 50 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 2021. To qualify, the vehicle must be brand new.
Compared to the standard relief on vehicles of 18% per annum (on a reducing balance basis for cars with CO2 emissions of 51-110 g/km), the 100% write-down represents a cost benefit to company-owned EVs worth thousands of pounds between comparable models.
|Capital allowance rates||Allocation||Apr 2018 - Mar 2021|
|100% (first-year)||Main rate pool||up to 50 g/km|
|18% annual||Main rate pool||51 - 110 g/km|
|8% annual||Special rate pool||over 110 g/km|
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.
Congestion Charge: Drivers who find themselves requiring access to the London Congestion Charge Zone in an electric vehicle can save £15.00 per day.
ULEZ Charge: Drivers who find themselves requiring access to the London Ultra Low Emission Zone in an electric vehicle can save £12.50 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 £2,500 for EVs costing less than £35,000; vans recieve a grant for 35% of the purchase price, up to £3,000 for small vans and £6,000 for large vans.