Electric company cars are increasingly becoming the preferred choice for UK businesses.
There are various tax reliefs available when incorporating electric or plug-in hybrid vehicles into your fleet, which vary based on the vehicle type, its CO2 emissions, and how you purchase or lease the vehicle.
Electric car company car tax rules provide several tax benefits over petrol or diesel cars:
HMRC consider Company Cars as a non cash benefit, therefore your employees will pay Company Car Tax, often referred to as Benefit in Kind (BIK), should they have a Company Car or opt for Salary Sacrifice.
One of the most significant tax advantages of choosing an electric company car in the UK is the low benefit in kind (BIK) rate that employees pay.
For the 2024 tax year, the BIK rate for electric cars is set at 2%. From 2025, this is scheduled to increase by 1% each subsequent year until it reaches 5% in the 2027/28 tax year. Even with these gradual increases, the BIK rate for electric cars remains significantly lower compared to both plug-in hybrid and internal combustion engine (ICE) vehicles, which can face BIK rates as high as 37%.
The taxable benefit-in-kind is calculated as a percentage of the car’s UK list price. The percentage depends on the car’s CO2 emissions in grams per kilometre (g/km).
| CO2 Emissions (g/km) | EV Range (miles) | Appropriate Percentage * 2024 -2025 |
| N/A | 2% | |
| 1-50 | More than 130 | 2% |
| 70-129 | 5% | |
| 40-69 | 8% | |
| 30-39 | 12% | |
| Less than 30 | 14% | |
| 51-54 | N/A | 15% |
| Over 54 | N/A | + 1% for every 5g/km up to 37% |
*Add 4% for diesels up to a maximum of 37% (unless RDE2 compliant). Diesel plug-in hybrids are classed as alternative fuel vehicles, so the 4% diesel supplement does not apply to these vehicles irrespective of RDE2 compliance.
Click to view our detailed BIK rates table.
When a company purchases a fixed asset, such as tools, machinery or a car, it is not usually possible to deduct the entire expenditure on the asset from the profits straightaway on the basis that it represents capital expenditure. Instead, tax relief is calculated for qualifying capital expenditure by way of capital allowances, which effectively spreads the amount of tax relief that can be claimed over a number of years; as opposed to the depreciation for accounting purposes, which is generally not deductible for tax purposes.
With company cars, there are special rules dictating the amount of capital allowance that can be offset against profits each tax year.
|
CO2 Emissions |
Allowed Rentals |
|
0 |
100% |
|
1 - 50 |
18% |
|
Above 50 |
6% |
Include cars used by sole traders or partnerships with private use in a single asset pool.
Until April 2025, a business that purchases a van with zero CO₂ emissions is eligible for a 100% First-Year Allowance (FYA) provided the business does not claim the government’s Plug-In Van Grant (PIVG).
Any other van should be treated as plant and machinery and allocated to the main pool, where it will be eligible for writing down allowances at 18%, unless an Annual Investment Allowance is claimed.
Other allowances: Electric Charge Points 100% this will expire on 31 March 2025.
If a company leases its cars, then the finance element of the lease rental that the company pays constitutes a cost that can be offset against its profits (normally in the year that they are incurred), therefore paying less corporation tax.
From April 2021, if a car has CO2 emissions of 50g/km or less, then the full amount of the finance element of the lease rental will attract tax relief. However, where a car has CO2 emissions above 50g/km, there is a flat-rate reduction of 15% in the value of the lease rentals that can be considered for corporation tax relief.
For contracts entered in to from April 2021
|
CO2 Emissions |
Allowed Rentals |
Disallowed Rentals |
|
50 g/km or below |
100% |
0% |
|
Above 50 g/km |
85% |
15% |
From 1st January 2021, the maximum Annual Investment Allowance (AIA) reduced from £1 million to £200,000.
It is effectively a 100% allowance that applies to most qualifying expenditure up to the annual cap, with expenditure on cars being the most important exception. Commercial vehicles, such as vans, should qualify for the annual investment allowance.
Where qualifying expenditure exceeds the annual cap tax relief will be given under the normal capital allowance regime via the main or special rate pools, with writing down allowances being given at 18% or 6% respectively, on the reducing balance basis.
Fully electric vehicles costing less than £40,000 are exempt from VED, also known as road tax. This exemption is set to last until 2025 after 2025 electric cars will pay road tax.
Use advisory fuel rates to work out mileage costs if you provide company cars to your employees.
Electric Vehicles = 9 pence per mile.
|
Engine size |
Petrol - amount per mile |
LPG - amount per mile |
|
1400cc or less |
13 pence |
11 pence |
|
1401cc to 2000cc |
15 pence |
13 pence |
|
Over 2000cc |
24 pence |
21 pence |
|
Engine size |
Diesel- amount per mile |
|
1600cc or less |
12 pence |
|
1601cc to 2000cc |
14 pence |
|
Over 2000cc |
19 pence |
The list price is on the day before first registration, including most accessories, and is reduced by any employee’s capital contribution (max £5,000) when the car is first made available.
Where the cost of all fuel for private use is borne by the employee, the fuel benefit is nil. Otherwise, the fuel benefit is calculated by applying the car benefit percentage to the car fuel benefit multiplier (below).
|
Company Car Fuel |
2024/2025 |
2023/2024 |
|
Car fuel benefit multiplier |
£27,800 |
£27,800 |
|
Company Vans* |
2024/2025 |
2023/2024 |
|
Van benefit charge |
£3960 |
£3960 |
|
Van fuel benefit charge |
£757 |
£757 |
*Applies where private use is more than home-to-work travel. Payments by employees for private use may reduce these benefits-in-kind. Zero-emission vans have a benefit value of £0.
Electricity is not a fuel for car fuel benefit purposes.
Salary Sacrifice for Electric Vehicles (EVs) is currently the fastest-growing vehicle financing method. This initiative, similar to the cycle-to-work scheme but tailored for electric vehicles, enables your employees to save up to 40% on the cost of an EV while boosting your company's sustainability efforts.
An employee can save money by opting for a salary sacrifice scheme where part of their annual salary is exchanged for a car and additional services before tax. This helps in reducing their tax and national insurance payments. In return, the employee receives a new fully maintained and insured vehicle at a more affordable rate than they would otherwise obtain. The car is considered a company car for tax purposes.
The employer collaborates with Lease Electric to procure the desired vehicle(s) for the employee and deducts the total cost from the employee's salary. This arrangement leads to reduced National Insurance Contributions (NICs) and provides corporation tax relief for the employer. Similarly, the car is treated as a company car for tax purposes.
To find out more about Lease Electric's Salary Sacrifice Scheme, or to sign your business up and begin providing this benefit to your employees click here
Closing: 31 March 2025, 11:59pm
The Workplace Charging Scheme (WCS) is a voucher-based scheme designed to provide eligible applicants with support towards the upfront costs of the purchase and installation of EV chargepoints.
The contribution is limited to 75% of purchase and installation costs, up to a maximum of £350 for each socket, up to a maximum of 40 across all sites for each applicant. The Workplace Charging Scheme (WCS) is available to registered businesses, charities and public sector organisations that have dedicated off-street parking.
In addition to the £350 per socket, the WCS will also be able to provide additional help for small and medium-sized enterprises (less than 250 employees) to provide their staff or fleet car parks with EV chargepoints.
To find out more about these scheme, visit the Government's Grant Service by clicking here.
