Advert
When it comes to driving, there are plenty of incentives to go electric, not least the lower running costs and the reduced environmental impact. But there are also a host of tax benefits of electric cars, meaning you can save even more money by going greener. With prices high and the cost of living growing more expensive, every pound saved can help.
Tax is a confusing subject for many, and we can see why. All too often it’s needlessly complex. But we’ll explain the tax advantages of electric cars clearly and simply here, so you can easily understand the benefits of switching to an electric vehicle.
Officially called Vehicle Excise Duty (VED), but most often called road tax, this is the yearly tax payment vehicle owners need to pay.
After a higher payment in the first year, calculated based on the CO2 emissions of the vehicle, most petrol and diesel drivers will pay an annual road tax of between £190 and £209.
Before April 2025, electric cars were exempt from Vehicle Excise Duty, but from April 2025 onwards electric vehicle owners will have to pay road tax. Despite this, there are still plenty of electric car and van tax benefits.
As well as the regular annual road tax payment, some car owners will also need to pay an additional surcharge on more expensive cars.
If the list price (the original recommended retail price) of a car is over £40,000, and that car is five years old or less, then the owner will need to pay an additional £410 a year (until that car is older than five years).
Thankfully, electric vehicles are still exempt from this surcharge. If you buy an electric car worth more than £40,000, you won’t need to pay the yearly £410 surcharge.
A capital allowance is a kind of tax relief for businesses. With a capital allowance, a business can deduct the cost of something from its profits before it pays tax, lowering how much overall tax the business pays.
Currently, if a business buys an electric car as a company car, they’re entitled to a 100% first-year capital allowance, meaning the full price paid for the car can be deducted from their profits before tax. This can represent a substantial saving for small businesses, especially if you operate as a sole trader.
If you’re given a company car by your employer, it’s counted as a taxable benefit by the government (a non-cash benefit given by your employer to you outside of your regular salary). Non-cash benefits are covered by a tax called Benefit in Kind (BIK) tax.
The BIK tax rates for company cars are charged annually as a percentage of the car’s value. For petrol and diesel cars, the rate is calculated based on how much CO2 the car emits. This can range from 2% to 37% for petrol cars and 6% to 37% for diesel cars, but is usually higher than the 2% or 6% minimums.
Electric company car drivers pay a lower Benefit in Kind (BIK) tax rate. Currently this is set at 2% (before April 2025) and is set to rise to 3% in the 2025/26 tax year. It will then rise to 4% in 2026/27 and 5% in 2027/28.
Congestion and Clean Air Zones are areas in busy city centres where traffic is discouraged, and where fees are charged to drive during peak times. For instance, you’ll currently pay £15 to drive into London’s Congestion Charge Zone during peak hours.
Whilst London was the first city to introduce a Congestion Charge Zone, a number of UK cities now operate similar Clean Air or Zero Emissions Zones, with others planned, such as Oxford, Birmingham, Bristol, and Sheffield.
If you enter these zones driving an electric vehicle, you’ll often not have to pay the zone fee, or you’ll be given a discount. At the time of writing, electric vehicles are exempt from the London Congestion Charge (but will have to pay it after 25th December 2025), and almost all Clean Air and Zero Emission Zones across the UK.
The government is encouraging the transition to electric vehicles throughout the UK by offering a range of financial incentives, like tax benefits. If you’re looking to make the change to an electric car, you can save on tax as well as on running costs. As the UK’s 2030 ban on new petrol and diesel car sales grows ever closer, now is the ideal time to take advantage of the tax benefits of electric cars and go electric.
To help you find out more about electric vehicles, including understanding which electric car or van is right for you, you’ll find plenty of guidance and advice at Green Car Guide. Take a look at our electric car news, EV buying guides, in-depth EV features, and impartial electric car reviews. Sign up to our mailing list to be kept up to date on new developments and articles.
