electric cars

Electric Car Tax Benefits

Vehicle Excise Duty (VED)

Vehicle Excise Duty (VED) is a tax applicable to all vehicles driving on UK roads. Pure electric cars are exempt from paying VED to offer full support for those opting for the very cleanest cars and vans. All cars that emit less than 75g/km CO2 pay less road tax in the first year, delivering additional cash savings for plug-in hybrids.

Benefit in Kind

The provision of a company car that is available for the employee’s private use is treated as a benefit in kind (BIK). The benefit is valued as an ‘appropriate percentage’ of the car’s total list price and is dependent upon the car’s CO2 emissions. The emissions figure can be found on the car’s registration document (V5C). A BIK tax calculator is available at www.hmrc.gov.uk/calcs/cars

Above 75g/km CO2, the appropriate percentage continues to increase by 1 percentage point for each increase of 5g/km CO2, to a maximum of 37%.

Changes from the 2020/21 tax year are designed to further incentivise the operation of electric vehicles as company cars. A total of 11 new bands for ultra-low emission vehicles below 75g/km will be introduced – five are linked to the number of miles a car can travel on electric power alone – including a separate zero emission band. Vehicles emitting 51-54g/km will be taxed at 15%, after which a one percentage point increase applies per 5g/km CO2. The key thing to note is that pure electric cars will have zero BIK from April 2020.

Workplace electric vehicle charging

The government announced in the 2017 Autumn Budget that employer-provided electricity, provided from workplace charging points for charging employees’ own electric vehicles, is exempt from being taxed as a BIK from 6 April 2018. However, the provision by an employer of a charge point for an employee at their home does give rise to a BIK.

Van Benefit Charge

This tax is levied when an employer provides an employee with a van for private use. The charge is set at a flat rate: £3,430 in 2019-20. Zero emission vans are currently only liable for a proportion of the full van benefit charge: 60% for 2019-20. This will increase on a tapered basis reaching parity with the main rate in April 2022.

Van Fuel Benefit Charge

If an employer gives an employee a van to use which is subject to the van benefit charge and the employer pays for their fuel, the employee will need to pay a fuel benefit charge. Van fuel benefit charge is set at a flat rate, £655 in 2019-20. As electricity is not treated as a fuel, it is not subject to the van fuel benefit charge. This means that if an employer allows an employee with a company van to recharge at work, this does not fall under van fuel.

Enhanced Capital Allowances (ECAs)

An Enhanced Capital Allowance (ECA) allows a business to write off the whole cost of an asset against taxable profits in the year of purchase. ECAs are available for certain energy and water efficient technologies. ECAs for cars are based on their CO2 emissions. Cars purchased with CO2:

  • Of 50g/km or less qualify for a 100% First Year Allowance (FYA). This allowance only applies to new cars. Cars that are leased also do not qualify
  • Up to 110g/km qualify for a writing down allowance at 18% a year
  • Over 110g/km qualify for a lower ‘special rate pool’ writing down allowance of 8% a year.

The government announced in the 2016 Budget that it will extend the 100% FYA for low emission cars until April 2021. The government is due to review the case for the FYA and the appropriate emission thresholds from 2021 in the 2019 Budget.

Find out more

Further details of the taxes and benefits applicable to ultra-low emission vehicles can be found here:

View the ULEV Tax Benefits Guide