Electric Car Tax Benefits

Summary of Electric Car Tax Benefits

In his March 2020 Budget, Chancellor of the Exchequer Rishi Sunak confirmed that motorists buying electric cars would continue to benefit from the Plug-In Car Grant (to 2022-2023), but it would reduce from £3,500 to £3,000, and cars costing £50,000 or more would be excluded.

The Plug-In Van Grant also continues, providing up to a maximum of £8,000 off the price of a plug-in van, and there’s up to £20,000 off the price of large vans and trucks.

Company car benefit-in-kind tax rates already announced for the three years 2020-2021, 2021-2022 and 2022-2023 were confirmed in the Budget. The Chancellor also announced that rates would then be frozen for the following two financial years, 2023-2024 and 2024-2025. This means that a pure EV will have 0% BIK in 2020-2021, 1% BIK in 2021-2022, and 2% BIK in 2022-2023 – and in 2023-2024 and 2024-2025.

There was more good news for EV buyers with VED. From 1 April 2020 until 31 March 2025 all zero emission vehicles will be exempt from the Vehicle Excise Duty ‘expensive car supplement’. Presently all cars with a list price above £40,000 pay a £320 supplement, which increases to £325 from April 1, 2020, for five years from the second time a vehicle is taxed.

More details of the measures in the March 2020 Budget that will impact on motorists are as follows:

Plug-in Car and Van Grants

The Chancellor confirmed an extension of the Plug-In Car Grant to 2022-2023 but the existing zero-emission Plug-In Car Grant of £3,500 would be cut to £3,000, while cars costing £50,000 or more would be excluded.

The Plug-In Car and Van Grants provide up to a maximum of £3,000 (previously £3,500) off the price of a zero emission car and £8,000 off the price of a plug-in van (large vans and trucks up to £20,000). The former was due to expire at the end of March, while there was previously no confirmed end date for the latter.

The Plug-In Car Grant was cut in October 2018 from £4,500 to £3,500 and plug-in hybrid vehicles were removed from the list of eligible models. The Plug-In Van Grant is available for vehicles that have CO2 emissions of less than 75g/km and can travel at least 16km (10 miles) without any CO2 emissions.

The Plug-In Car Grant was introduced in 2011 and the Plug-In Van Grant the following year.

Company car benefit-in-kind tax

Company car benefit-in-kind tax rates already announced for the three years 2020-2021, 2021-2022 and 2022-2023 were confirmed in the Budget. The Chancellor also announced that rates would then be frozen for the following two financial years, 2023-2024 and 2024-2025.

Due to the transition to carbon dioxide (CO2) emission testing under the new Worldwide harmonised Light vehicles Test Procedure (WLTP) from April 2020, the Government has adopted a twin-track approach for company car benefit-in-kind tax rates. That sees separate rates for cars first registered before April 6, 2020 and those first registered from April 6, 2020. This approach remains in place for the two financial years, 2020-2021 and 2021-2022 before company car benefit-in-kind tax rates realign in 2022-2023. Those already announced 2022-2023 rates will now be sustained throughout the tax years 2023-2024 and 2024-2025.

Company car benefit-in-kind tax rates for cars first registered before April 6, 2020

For each tax year add 4% for diesel cars up to a maximum of 37%. Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt.

Company car benefit-in-kind tax rates for cars first registered from April 6, 2020

For each tax year add 4% for diesel cars up to a maximum of 37%. Cars that meet the Real Driving Emissions Step 2 (RDE2) standard are exempt.

Vehicle Excise Duty rates from April 2020

Vehicle Excise Duty rates will, as usual, increase in line with the Retail Price Index from April 1, 2020. However, the Government has announced that from April 1, 2020 and until March 31, 2025 all zero emission vehicles will be exempt from the Vehicle Excise Duty ‘expensive car supplement’. Presently all cars with a list price above £40,000 pay a £320 supplement, which increases to £325 from April 1, 2020, for five years from the second time a vehicle is taxed.

Vehicle Excise Duty for cars first registered from April 1, 2020

Rates for second tax payment onwards for cars registered after April 1, 2017

Fuel type                     12 month rate

Petrol or diesel              £150

Electric                            £0

Alternative fuel              £140

Cars, excluding zero emission models, with a list price above £40,000 pay a £325 supplement for five years from the second time the vehicle is taxed.

Vehicle Excise Duty from April 1, 2020 for cars registered between March 1, 2001 and March 31, 2017

VED Band       CO2 emissions (g/km)            Standard rate*

A                       Up to 100                                     £0

B                       101-110                                        £20

C                       111-120                                        £30

D                       121-130                                        £125

E                       131-140                                        £150

F                       141-150                                        £165

G                       151-165                                        £205

H                       166-175                                        £240

I                         176-185                                        £265

J                        186-200                                        £305

K**                     201-225                                       £330

L                        226-255                                        £565

M                       Over 255                                      £580

*Alternative fuel discount 2019/20 £10 all cars

**Includes cars emitting over 225 g/km registered before March 23, 2006.

Car and van fuel benefit charges and van benefit charge

The annual increase in car and van fuel benefit charges and the van benefit tax charge means that in 2020-2021 the rates are:

• Car fuel benefit charge: £24,500 (2019-2020: £24,100)
• Van benefit-in-kind tax charge: £3,490 (2019-2020: £3,430)
• Van fuel benefit charge: £666 (2019-2020: £655)

The tax charge for zero-emission vans increases in 2020-2021 to 80% from 60% of the main rate.

However, from April 2021, the Government will apply a nil rate for tax to zero-emission vans. It calculates that the measure will save businesses an estimated £433 per van in tax in 2021-2022.

Capital allowances

To support the uptake of zero emission vehicles and ultra-low emission vehicles from April 2021, the Government is to extend for four years the 100% first year allowances to zero emission vehicles only and apply the main rate writing down allowance of 18% to cars with emissions up to 50g/km.

The special rate writing down allowance of 6% will apply to higher polluting cars with emissions above 50g/km.

Presently companies can write down the full cost of vehicles with emissions up to 50g/km against their taxable profits; the 18% rate applies to cars with emissions of 51-110g/km; and the 6% rate to cars with emissions of more than 110g/km

The new 50g/km threshold will also apply for determining the lease rental restriction for costs of hiring business cars for more than 45 consecutive days.