It’s well known that the UK Government has been offering tax benefits to fuel demand for vehicles with the lowest CO2 emissions. 20 years ago, the demand was for diesel cars, however as the world has moved on, electric vehicles are the hottest property in low CO2 emission cars and the tax benefits for driving them are something to consider.

The government’s strategy to reduce carbon emissions puts a lot of emphasis on the use of electric cars. In March 2023 new targets were set with the proposal of ‘the ZEV (Zero Emission Vehicle) mandate’, which outlines annual sales targets for car manufacturers from 2024 to 2030. With the objective of all new cars/vans sales to be ZEVs by 2035. In 2024, these targets will be 22% for cars and 10% for vans.

With all that in mind, what are the benefits of having an electric company car for employees and business owners? We’ll break it all down.


What is the road tax & congestion charge for electric vehicles?

One of the main tax benefits of electric vehicles for both companies and the public is that they are completely exempt from road tax, or vehicle excise duty (VED) as it was previously known. The tax on petrol and diesel cars will vary depending on the CO2 emissions of the car but tends to cost drivers north of £100 a year and in some cases can top £2,500 a year.

This tax exemption will be available until April 2025, after which they will be taxed the same as other conventionally fuelled vehicles. As of April 2020, electric vehicles (EVs) have also been made exempt from a road tax surcharge, currently applied to all cars that were registered after April 1st, 2017, and have a ‘list price’ of over £40,000. For more information about tax rates for cars in the UK, visit the government website.

As well as road tax, those who choose to drive EVs will benefit from not paying the congestion charges required for entry to CAZs (clean air zones). These zones already exist in London, Birmingham, Bristol, and other parts of the UK, and are set to be rolled out across the country.

There has been a lot of controversy around these zones with motorists who rely on driving inside these areas feeling the charges are unfair. This may cause the government to change legislation in the future but for now, it is worth cashing in on the savings whilst you can.


‘Benefit in Kind’ for Electric Vehicles

Another tax benefit of EVs is a far lower Benefit in Kind charge in comparison to non-electric vehicles.

As with other benefits-in-kind, such as dental care, gym memberships, cycle-to-work schemes, etc, company cars that are used for personal as well as business use incur a tax.

The rate at which you are taxed for a BIK is based on the CO2 emissions and the vehicle’s list price (not the amount you paid for it). This can be up to 37% for petrol or diesel-powered vehicles.

With that in mind, the current rate for electric vehicles is just 2% and you can see how going green could add to your revenue or income and this rate will stay at 2% until 2025.

Below is a comparison that will clearly outline the amount of tax you pay on the electric and conventionally fuelled versions of a car. Notice that the electric model of these cars also has a higher list price.


Car BIK % List Price Tax 20% Tax 40%
BMW I4 2% 50,755.00 203.02 406.04
BMW 4 Series GC 35% 45,380.00 3,176.60 6,353.20
Volvo XC40 Electric 2% 46,505.00 186.02 372.04
Volvo XC40 Petrol 35% 35,895.00 2,512.65 5,025.30


Please note: there are BIK for those who use electric bikes under the Cycle to Work scheme.

If you are an employee your employer will complete a P11D form or use the payrolling system to report tax on a benefit-in-kind. If you are the former, they should give you a copy of the P11D form.


Are there capital allowances?

If you own a business or rack up the miles for work and are provided with a company car, there are even more benefits to using an electric vehicle.

For the first year of purchase, businesses can claim 100% capital allowances for the cost of an EV against profits before tax, without any limit on the vehicle’s value. However, the vehicle must be new and unused. This incentive is made even more lucrative by the fact that from April 2021 you will be unable to claim this tax-relief for hybrid vehicles that emit over 50g of CO2 per kilometre.

What VAT do I pay on an electric vehicle?

Although EVs are not exempt from VAT you can still claim back 50% of VAT if the car is for business use only. You can also claim VAT for charging, again, if the car is for business use.

Please note: If you, or any of your employees, do use the vehicle for personal use, you will create a Benefit in Kind and income tax and national insurance will need to be paid on this. You will also need to prepare a P11D, if you need support with your P11D, please get in touch with us and one of our accountants will help you with yours.


What are the mileage rates?

There are no benefits in kind for charging electric vehicles, this is because the electricity is not classed as a fuel by HMRC. As of the 1st of December 2023, the advisory electricity rate for fully electric cars is 9 pence per mile. This means that you can claim a reimbursement of up to 9p per mile for every business mile travelled, tax-free.

Below are a few points regarding the tax deductions/reliefs available for EV ‘’fuel’’ – electricity. However, understanding what your entitlements are from these points can become quite a complicated task. Unfortunately, HMRC does not provide particularly clear information on tax benefits for EVs.

We recommend speaking to one of our expert advisors if you are seeking further guidance.

  • If you charge your own personal vehicle at your home, at a charging point paid for and installed by your employer, then you will incur a benefit-in-kind. However, you can claim tax relief for business miles travelled.
  • When your employer reimburses you for the cost of electricity used to charge a company vehicle at home, this is treated as taxable earnings. However, you can claim tax relief for business miles travelled.
  • If an employer pays you to charge your personal vehicle at a charge point, then you will be taxed for this benefit as per the cost incurred by the employer. However, you can claim tax relief for business miles travelled.

For more details on reimbursement to a company as an employee, or to an employee as a company see HMRC’s webpage. 


Are there taxes for charging EVs?

The cost of charging electric vehicles and providing charging facilities may be eligible for taxable benefit exemptions. Whether employers that provide charging points for their employees are exempt from Benefit in Kind tax, depends on a few criteria:

  • The charge point is installed at or near the company workplace (This includes the charging of personal vehicles if that charge point is available to all employees)
  • The charge point is installed at the employee’s home and paid for by the company if the employee is charging a company car.
  • The employer pays the employee to charge a company car

HMRC have created this online form. For those who are unsure as to whether they must pay tax for charging their employee’s electric vehicles.


Salary sacrifice car schemes

If you’re an employee who has a company car, there are also tax benefits should you be able to make the switch to an electric car.

If your employer offers a salary sacrifice scheme and you choose to opt in, you will not have to pay any tax on the money used to obtain the car.

The scheme works in the same way as the cycle-to-work scheme which we will cover later. The scheme works by taking a portion of your salary (before tax) to fund the repayments for an electric car.

The car will be leased from a third-party firm by your employer, who then leases it to you. These schemes normally include insurance and servicing, meaning all you have to do is fuel (or charge) your vehicle. These agreements usually last for 2-4 years and you will be able to use the car for personal use.


Schemes for electric bikes

It isn’t just cars that benefit from going electric, those who prefer to get around on 2 wheels can also receive tax benefits from going electric. With the Cycle-to-Work scheme companies can offer a tax-free benefit to employees.

The Cycle-to-Work scheme allows employees to make a salary sacrifice to pay back a bike the company has bought. The scheme allows companies to purchase e-bikes at a 50% discount on the market value, and then loan out the bikes to employees via a hire agreement that they repay with a small reduction in salary. After a certain amount of time, usually several years, the employee can take full ownership of the bike.

This arrangement has increasing appeal due to the movement towards making cities more cycle-friendly and the introduction of electric bikes.


What about electric vans?

If you require a van for your work, you may be wondering if you can capitalise on the benefits of going electric. You’ll be pleased to hear that you can capitalise on all the benefits listed above, in fact, there are even some benefits for van drivers.

As you may already know, a petrol or diesel van that is used just for the purpose of work (including commuting) is free of tax. You will also not have to pay tax if the personal use of the van is deemed “insignificant” – this for example could be the odd run to the dump or dropping a child off at school on your way to work.

If the personal use of the van is more significant, for example, you treat the van as if it were a personal vehicle, then the van is subject to a flat taxable amount of £3,690 for the 2023/24 Financial Year; if you are a 20% tax rate payer, you will pay 20% of this, so £738 a year.

However, should you make the switch to an electric van, you will not have to pay any tax, even if you use the van as a personal vehicle in your free time.

The Government has also introduced several plug-in vehicle grants. These include grants for small and big vans, provided the vehicle emits 75g/km of CO2 or less and is capable of zero-emissions travel.

These grants cover up to 35% of the purchase price (up to a maximum of £2500) for small vans, for larger vans the grants will cover 35% (up to £5000). However, it is worth making sure that the car does meet the requirements for the grant before you buy it.

Businesses can claim a maximum of 1000 plug-in van grants each year, with the year resetting on April 1st.


Reduced National Insurance contributions for employers

If you’re an employer, you will know that you must pay National Insurance Contributions (NICs) on salaries, but also on employee benefits such as a company car. NICs for company cars are based on their fuel efficiency, more specifically their CO2 emissions. Due to this, rates are far more favourable should you provide people in your company with electric vehicles over those that are conventionally fuelled.


Grants for EVs

All the above benefits will help you to save money on your purchases, but you can also get a helping hand with your purchase if the tax reductions weren’t enough already. On top of the tax breaks available, the government also issues several grants to encourage people to become more carbon-efficient with their transportation.

These are offered by the Office for Zero Emission Vehicles, some of the current grants are as follows:

  • EV ChargePoint grant (EVCPG) – Depending on which is lower, this provides up to £350 or 75% off the cost of purchasing and installing a charge point to homeowners.
  • EV infrastructure grant (EVIG) – Helps landlords with the cost of larger-scale construction work required for the installation of multiple charge points. You can receive 75% or £30,000 off the cost of the work, depending on the number of parking spaces covered.
  • Workplace Charging Scheme (WCS) – Provides up to 75% of the cost (inc. VAT) of purchasing and installing a charge point, capped at a maximum of £350 per socket and 40 sockets across all sites per applicant. Available to qualifying charities, businesses and organisations.

To see the full range of grants see HMRC’s webpage.


Hopefully, all the information above will help you to decide whether it is worth making the change to electric. The government is pushing the use of cars and now does seem to be a good time to make the switch and make use of all the tax benefits.  If you’re looking for further advice about how an electric car will impact your business, you can speak to our team of experts.