As the UK government seeks to lower carbon emissions, the tax benefits of having electric cars in your business can be significant. In this article, we look at the different tax and other cash benefits your business can enjoy by embracing electric vehicles (EVs).
Benefit-in-kind (BIK) tax
If you are an employee of your own company (i.e. a director who is taking a salary and working under a service contract), certain perks and benefits that you receive from the business are taxed. This includes medical insurance, child care vouchers, travel and entertainment expenses, and company cars.
This means that if the company has provided you with a company car, you (as the employee) need to pay tax on it. This is where it pays to be using an electric car.
The amount of tax you pay depends on a car’s CO2 emissions and list price (the recommended retail price of the car). The 2024/25 BIK rate for an EV is 2%. In comparison, the BIK rate for a car with a petrol engine goes up to 37%.
Benefit-in-kind company car tax rates
| C02 (g/km) | Electric mileage range | 2023/24 | 2024/25 | 2025/26 | 2026/27 | 2027/28 |
| 0 | – | 2% | 2% | 3% | 4% | 5% |
| 1 – 50 | 130 and over | 2% | 2% | 3% | 4% | 5% |
| 1 – 50 | 70 – 129 | 5% | 5% | 6% | 7% | 8% |
| 1 – 50 | 40 – 69 | 8% | 8% | 9% | 10% | 11% |
| 1 – 50 | 30 – 39 | 12% | 12% | 13% | 14% | 15% |
| 1 – 50 | less than 30 | 14% | 14% | 15% | 16% | 17% |
| 51 – 54 | 15% | 15% | 16% | 17% | 18% | |
| 55 – 59 | 16% | 16% | 17% | 18% | 19% | |
| 60 – 64 | 17% | 17% | 18% | 19% | 20% | |
| 65 – 69 | 18% | 18% | 19% | 20% | 21% | |
| 70 – 74 | 19% | 19% | 20% | 21% | 21% | |
| 75 – 79 | 20% | 20% | 21% | 21% | 21% | |
| 80 – 84 | 21% | 21% | 22% | 22% | 22% | |
| 85 – 89 | 22% | 22% | 23% | 23% | 23% | |
| 90 – 94 | 23% | 23% | 24% | 24% | 24% | |
| 95 – 99 | 24% | 24% | 25% | 25% | 25% | |
| 100 – 104 | 25% | 25% | 26% | 26% | 26% | |
| 105 – 109 | 26% | 26% | 27% | 27% | 27% | |
| 110 – 114 | 27% | 27% | 28% | 28% | 28% | |
| 115 – 119 | 28% | 28% | 29% | 29% | 29% | |
| 120 – 124 | 29% | 29% | 30% | 30% | 30% | |
| 125 – 129 | 30% | 30% | 31% | 31% | 31% | |
| 130 – 134 | 31% | 31% | 32% | 32% | 32% | |
| 135 – 139 | 32% | 32% | 33% | 33% | 33% | |
| 140 – 144 | 33% | 33% | 34% | 34% | 34% | |
| 145 – 149 | 34% | 34% | 35% | 35% | 35% | |
| 150 – 154 | 35% | 35% | 36% | 36% | 36% | |
| 155 – 159 | 36% | 36% | 37% | 37% | 37% | |
| 160 – 164 | 37% | 37% | 37% | 37% | 37% | |
| 165 – 169 | 37% | 37% | 37% | 37% | 37% | |
| 170 + | 37% | 37% | 37% | 37% | 37% |
As you can see, rates for EVs are due to increase year on year for the next five years, but the savings to be had by going electric are still significant.
Capital allowances: 100% first-year allowance
As a business owner, it’s important to know about capital allowances. This form of tax relief allows you to deduct the value of something (such as equipment and machinery) from business profits before you pay tax.
Some items qualify for a 100% first-year allowance, including electric cars. This means that, provided that the car is new and unused, its entire cost (there’s no limit on the value) can be deducted from your profits.
Whilst you can claim capital allowance on a non-electric vehicle, the rate is not as generous (you qualify for the ‘main’ rate if you purchase a secondhand electric car).
- 18% ‘main’ rate
- 6% ‘special’ rate
The rate that applies to your vehicle will depend on when it was bought and how much CO2 it emits.
Clean air zone charges
To improve overall air quality, clean air zones (CAZs) have been introduced by local authorities across the UK in several cities including Bath, Birmingham, Bradford, Bristol, Glasgow, London, Portsmouth, Sheffield and Tyneside (Newcastle and Gateshead), with more zones being planned.
Different locations have different policies regarding charging drivers for going within them. However, those that do charge generally do not impose a fee if you drive a fully electric car.
This saving can be significant, especially if you regularly drive in London, where the Congestion Charge (£15 daily charge) and Ultra Low Emission Zone, also known as ULEZ (£12.50 daily charge) operate. As well as saving on the basic charges, drivers of electric cars don’t need to worry about penalty fees for late payment
However, it’s important to highlight that after 25 December 2025, electric cars will need to pay the London Congestion Charge.
‘Fuel’
Since 1 March 2024, the advisory electric rate for electric cars is 9p per mile. This is the recommended reimbursement rate for employees who need to use their company car for business travel.
Simply put, as a business owner operating as a limited company and employed by the company, you can claim back the 9p (tax-free) from your company for every business mile you travel in your company car (other than commuting to and from home).
HMRC reviews the advisory rates for company car users every three months – on 1 March, 1 June, 1 September, and 1 December. You should check these regularly for any changes.
VAT
Whilst the company will need to pay VAT when purchasing the electric car, if it’s being used for business purposes only, it can claim 50% of this VAT back. Furthermore, under the same circumstances, the company can claim VAT for charging fees.
Vehicle tax
Finally, we have vehicle tax, also commonly referred to as road tax, car tax, or vehicle excise duty. This is an annual tax that owners of internal combustion engine vehicles must pay. So, it generally applies to anyone driving a non-electric car.
When you purchase a new (non-electric) car, it needs to be registered and you must pay vehicle tax based on the car’s C02 emissions. You then pay a different rate for the second year onwards. This can be paid monthly, every 6 months, or every 12 months.
If the company purchases a secondhand non-electric car (so it’s been registered already), the second-year onward rates apply immediately. Here, the amount of duty payable depends on fuel type, engine size, and when the vehicle was first registered.
At the moment, electric car owners are exempt from paying vehicle tax upon registration and then onwards. What’s more, they are also exempt from the extra £410 charge that applies if a car’s list price is more than £40,000. This represents an immediate saving when comparing electric with petrol and diesel cars.
However, after 1 April 2025, the tax (and the £410 annual surcharge) will apply to EVs, in the same way it applies to other cars.
So, owners of electric cars registered between 1 April 2017 and 31 March 2025 will avoid the first-year payment but will need to pay the standard ongoing rate of £190 (current figure, may change).
From 1 April 2025, owners of electric cars registered either on that date or after must pay:
- the low first-year rate of £10
- then the standard second-year onward rate of £190
You will find the current vehicle tax rates from GOV.UK below. While they do not apply to electric vehicles at the moment, they are useful to demonstrate what non-electric vehicle owners are paying.
Vehicle tax: First payment when you register on or after 1 April 2017
| CO2 (g/km) | Diesel cars that meet the RDE2 standard & petrol cars | All other diesel cars | Alternative fuel cars* |
| 0 | £0 | £0 | £0 |
| 1 – 50 | £10 | £30 | £0 |
| 51 – 75 | £30 | £135 | £20 |
| 76 – 90 | £135 | £175 | £125 |
| 91 – 100 | £175 | £195 | £165 |
| 101 – 110 | £195 | £220 | £185 |
| 111 – 130 | £220 | £270 | £210 |
| 131 – 150 | £270 | £680 | £260 |
| 151 – 170 | £680 | £1,095 | £670 |
| 171 – 190 | £1,095 | £1,650 | £1,085 |
| 191 – 225 | £1,650 | £2,340 | £1,640 |
| 226 – 255 | £2,340 | £2,745 | £2,330 |
| 255 + | £2,745 | £2,745 | £2,735 |
*including hybrids, bioethanol and liquid petroleum gas
Vehicle tax: Second payment onwards (when you register on or after 1 April 2017)
| Fuel type | 12 month payment | 6 month payment |
| Petrol or diesel | £190 | £104.50 |
| Alternative | £180 | £99 |
Payments can also be made monthly by Direct Debit (these payments can be slightly higher).
See here for vehicle tax rates for cars registered between 1 March 2001 and 31 March 2017.
So there you have it
That’s how electric cars can provide tax benefits for your business. There are also additional benefits such as environmental, and savings on fuel and general maintenance (as an EV’s engine is essentially not as complicated as an internal combustion engine).
Thanks for reading this article. Please leave a comment if you have any questions and we’ll get back to you as soon as possible.
