What are the tax benefits of owning an electric vehicle?

For World Environment Day, we’re exploring the tax benefits of owning an electric car for businesses and individuals. In recent years, more people have been buying electric vehicles in the UK. At the end of April 2021, there were more than 245,000 pure-electric cars and 515,000 plug-in and hybrid models registered in the UK.

In recent months, the UK government has been taking steps to promote the purchase of electric vehicles. For example, in November 2020 the government announced that the sale of new petrol and diesel cars will end in the UK by 2030 to create a greener future. To encourage people to embrace electric vehicles, the government has put in place a range of incentives, including the provision of grants to install electric vehicle charge points, for both businesses and individuals.

Benefits for businesses

Businesses that provide staff with company cars may want to consider the benefits of electric vehicles on their tax bill. A common drawback with company cars is that they can create more personal tax liability than they save on the businesses’ corporation tax bill. For example, employees who have company cars are liable to pay tax on company benefits (Benefit in Kind). However, if the employee uses a company car that is pure electric, the Benefit in Kind rate will be set at 1% in 2021/22 and will rise to 2% in 2022/23. This tax rate is highly favourable compared to petrol and diesel cars that are now charged up to a maximum of 37%. To calculate your company car benefit and fuel benefit, please fill in this form provided by HMRC.

Benefits for individuals

For individuals, electric cars have a range of benefits. Not only are electric cars environmentally friendly, but they also have tax benefits. Vehicle Excise Duty is calculated based on CO2 emissions, and because pure electric vehicles emit no CO2, they are exempt.

However, plug-in hybrid vehicles, which emit some CO2, are not exempt. Individuals with these types of vehicle will need to pay tax. You can learn more about vehicle tax here. Individuals also have to pay an extra £335 a year if their vehicle has a list price over £40,000. However, electric cars are exempt from this charge for the time being. The government is also operating a scheme where individuals can purchase a low-emission vehicle with the help of a plug-in grant. The grant will pay for up to 35% of the purchase price for a range of low-emission vehicles, up to a maximum of £2,500.

Benefits for those travelling in London

If you regularly drive through Central London, an electric vehicle will be particularly appealing as zero-emission capable vehicles that meet specific criteria are eligible for a 100% discount on the Congestion Charge. Some London boroughs also offer free or reduced-charge parking for electric vehicles.

If you would like further details on the tax aspects of business motoring, please contact us for more information. A member of the Bulley Davey team will be happy to help.