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A Closer Look at Electric Car Tax

The number of electric vehicles on UK roads has considerably increased in the last few years. According to recent figures, there are currently over 234,000 battery-powered and plug-in hybrid vehicles registered in the UK with the number set to rise as newer models enter the market in the future.

The sale of electric cars in the UK has been boosted by favourable tax incentives and the Plug-in Car and Van Grants. This article will be discussing electric company car tax and tax for electric cars in the UK. It will also be highlighting the potential savings owners of electric vehicles should expect when compared to driving conventional diesel or petrol cars.

Electric Car Road Tax

Car tax, also called road tax but officially termed as VED or Vehicle Excise Duty is, for vehicles registered after March 2001, based on a vehicle’s official exhaust-pipe CO2 emissions. For vehicles registered prior March 2001, Vehicle Excise Duty is based on the size of the vehicle’s engine.

As from March 1st 2001, road tax rates were initially based on seven VED bands. However, these bands have risen to 13, ranging from A to M. This is similar to the system used to rate the energy efficiency of different electrical appliances. Each of these bands represents an array of exhaust-pipe CO2 emissions as defined by the official NEDC test cycle. You can do a road tax check on your car to see which band your vehicle falls into.

Considering that the CO2 emissions of plug-in hybrid and electric vehicles are either zero or below 100g/km, all electric-powered models (including hybrid vehicles) are currently categorised under band A (<100 grams per kilometre CO2) and are, therefore, zero-rated for standard car tax rates.

Furthermore, electric vehicles are exempt from first-year car tax which is used to penalise new cars that emit over 130g/km CO2.

In October 2014, the UK government digitised the vehicle tax payment process allowing car owners to pay online. As a result, car owners no longer have to display car tax discs on their windscreens. While electric vehicles are exempt for car tax, you should note that they still need to be tax-registered each year either by phone, online or at a post office.

Use this car tax calculator to know how much car tax your EV is due.

Electric Company Car Tax

The amount of tax payable for electric company cars is determined by the P11D or the official value of a vehicle, the recipient’s tax code, and the Benefit-in-Kind.

Like VED or car tax, company car tax is based on the vehicle’s exhaust-pipe CO2 emissions. This is part of the United Kingdom’s Government’s policy to encourage road users to adopt low emission vehicles. When it comes to company car tax, vehicles are grouped according to carbon dioxide emissions into tax bracket bands. Each band determines a vehicle’s Benefit-in-Kind rate, which is currently between 7 per cent and 37 per cent.

At the moment, all battery-powered electric vehicles have a Benefit-in-Kind rate of 16 per cent. Most of the plug-in hybrid cars on the road have emissions below 50 g/km carbon dioxide and have the same BIK as purely-electric vehicles.

Use acompany car tax calculator to know how much company car tax your electric vehicle is due.

Electric Car Capital Allowances

Capital allowances permit businesses to deduct eligible expenses costs from their annual tax bill. Just like company car tax and car tax, the rates at which companies can write down the value of their company vehicles is founded on their vehicle’s CO2 emissions.

As of 2018, plug-in hybrid and battery-powered electric vehicles with carbon dioxide emissions below 95g/km are eligible for a 100 per cent write-down in the first year. This ECA or Enhanced Capital Allowance was only applicable to the end of March 2018. As from April 2018, the Enhanced Capital Allowance threshold decreased to 75g/km CO2.

Compared to the average relief on vehicles of 18 per cent per annum, based on a reducing balance for cars with CO2 emissions between 96 and 130g/km, the 100 per cent write-down represents cost benefits to company-owned electric vehicles worth between 1,000 and 3,000 pounds over a four-year period, which is equivalent to about 7 per cent to 10 per cent of an electric vehicle’s OTR price.