The tax benefits of electric vehicles

Beyond the environmental benefits, electric cars offer substantial tax advantages that make them an attractive choice for many.

This article looks at the tax advantages and incentives for electric or low emission vehicles in the UK.

P11D/Class 1A National Insurance

When a company car is provided to an employee and there is access to the vehicle for private use, the employee must pay tax and NIC on the benefit.

The car's CO2 emissions determine the benefit in kind tax rate. Electric cars, with zero emissions, fall into the lowest benefit in kind tax band, resulting in lower tax liabilities for employees. This makes electric vehicles very attractive for businesses and employees. As a comparison, the percentage for a petrol or diesel car could be as high as 37%.

Percentage used in tax benefits of electric cars (registered before 6th April 2020) 

Vehicle CO2	2023/24	2024/25	2025/26
0g/km	2%	2%	3%
1-50g/km (electric range >130 miles)	2%	2%	3%
1-50g/km (electric range 70-129 miles)	5%	5%	6%
1-50g/km (electric range 40-69 miles)	8%	8%	9%
1-50g/km (electric range 30-39 miles)	12%	12%	13%
1-50g/km (electric range <30 miles)	14%	14%	15%

The percentage for fully electric cars (0g/km) will increase to 4% in 2026/27 and 5% in 2027/28.

Electric vans

In April 2021, they reduced the taxable benefit for having the private use of a zero-emission van to zero.

If you only use the van for business and commuting, there is no taxable benefit at all.

The business could get a grant to lower the price of a van and make it more affordable to buy.

Electric bikes

If you're considering taxes for bikes, it's important to differentiate between electric bicycles and motorcycles. The reason we need to distinguish between the two is because they have vastly different tax treatments.

An electric bicycle (electrically assisted pedal cycle) must:

• be pedal assisted;
• not have a motor-powered top speed more than 15.5mph,
• the electric motor must have a maximum power output of 250 watts.

Anything above this would be classed as a motorbike.

You can give an e-bike through the Cycle To Work Scheme without any tax implications. However, this is only possible if you follow the rules of the scheme.

Motorbikes are taxed under general use of asset rules which are 20% of the market value of the asset.

Businesses purchasing an electric motorbike with a range of at least 31 miles, may benefit from a plug in grant.

Capital allowances

Businesses that invest in electric vehicles with zero emissions benefit from enhanced capital allowances.

From 1st April 2021, businesses purchasing new cars with 0g/km CO2 emissions can claim 100% First Year Allowance (FYA). The purchase of a used electric car won't be eligible for FYA. Instead, regular capital allowances will be applicable, as indicated in the table below.

From 1st April 2023, buying a van would give incorporated businesses 100% FYA and non-incorporated businesses 100% Annual Investment Allowance.

The rules are summarised in the table below:

Expenditure incurred on or after 1st April 2021 

Type of car	CO2 Emissions	Capital Allowance
New	0g/km/Electric	100% FYA
Used	0g/km/Electric	18% FYA
New & Used	between 1g/km and 50g/km	18% WDA
New & Used	more than 50g/km	6% WDA

Electric charge points and charging costs

The UK Government is encouraging the growth of electric vehicles by offering tax incentives such as grants and tax savings.

Capital Allowances

The business can claim 100% First Year Allowance against the costs of installing new and unused charge points for electric vehicles. The business can therefore deduct the full cost from taxable profits in the year of purchase.

Benefits in Kind

Benefits in kind are benefits that employees and directors receive which aren’t included in their salary or wages. These benefits, or perks, are sometimes taxable and are known as a benefit in kind. Company cars with personal use are an example of a benefit in kind. 

On non-electric cars, a tax charge arises where fuel is provided for private use in a company car. The provision of electricity for charging a fully electric car is not fuel, so no fuel charge arises. For hybrid cars, this exemption does not apply. 

When it comes to charging the car – when is there a taxable benefit? 

Employees can charge their personally owned electric vehicles at the workplace with no taxable benefit. Employers must provide charging facilities at or near the workplace for all employees. 

Personal electric vehicle 

Where an employee charges their personal electric vehicle at home, the tax treatment depends on the electricity supply which can be summarised as follows: 

• Electricity provided by employer – where the personally owned car is used only for personal use, has mixed use or only business use - the cost of electricity is a taxable benefit in kind 
• Electricity reimbursed by employer – where the personally owned car is only used for private use, the reimbursement is taxable earnings for the employee 
• Electricity reimbursed by employer – where the personally owned car is used for both business and personal and the employer only reimburses for business miles – there’s no benefit 
• Electricity reimbursed by employer – where the personally owned car is used for both business and personal and the employer reimburses the employee at a flat rate – the reimbursement is taxable earnings for the employee 

Company electric vehicle 

When a company car is charged at home, the tax treatment depends on the electricity supply as follows:  

• Electricity provided by employer – no additional benefit regardless of whether there is private use of the vehicle 
• Electricity reimbursed by employer – where the company car is used for both business and personal, the reimbursement is taxable earnings for the employee 
• Electricity reimbursed by employer – where the company car is used for business only, the reimbursement is exempt 
• Electricity provided by employee – where the car is only used for private use there are no tax implications 
• Electricity provided by employee - where the vehicle has mixed or exclusive business use there is no additional benefit, the employee is entitled to a deduction for the cost of business miles travelled 
• Charged at charging point and electricity provided by employer through charge card – no additional benefit 

HMRC has provided this useful service to check if the charging on an electric car is taxable. 

Mileage payments 

Mileage allowance payments (MAPs) are paid by employers to employees for using their own vehicle for business journeys. Where the amounts is in line with HMRC’s approved amounts, this does not need to be reported to HMRC. For cars and vans, for the first 10,000 miles the rate is 45p per mile, thereafter it’s 25p per mile.  

Amounts paid above the approved rates are taxable and must be reported on a P11D. Where payments are below the approved rates there is nothing to report to HMRC. The employee may claim tax relief on the difference. 

Grants

The Government has made grants available that provide funding towards the costs of installing electric vehicle smart chargepoints.

Some small and medium-sized businesses can get grants to install electric vehicle charging infrastructure in their commercial car parks. These grants are available through the EV infrastructure grant for staff and fleets. Where eligible, the grant covers up to 75% of the installation costs, with a limit of £15,000 per grant.

Leased cars

There are different type of lease, depending on the terms of the contract. It can have significant impact on the tax relief on lease payments.

If you plan to return the car in the future, we consider the lease as operating. This is different to Personal Contract Purchase (PCP).

For operating leases, if the car has emissions under 50g/km you can get tax relief on all the lease payment.

If the car's emissions exceed 50g/km, you can only claim 85% for income tax or corporation tax purposes.

Can you reclaim VAT on an electric vehicle?

If there is any private use of the car, input VAT is not recoverable on purchase. You can reclaim the VAT on a car used only for business, but proving it to HMRC can be hard.

A similar restriction also applies to leased cars. Private use of the car allows for the recovery of only 50% of the input VAT on the leasing charge. Full VAT recovery, subject to the usual partial exemption and business use tests, is available on ongoing maintenance of leased cars.

Input VAT is claimable on vans and motorbikes, subject to partial exemption and/or non-business use.

Privately owned electric cars

Where an employee uses their own electric car for business journeys, the company can pay tax-free mileage allowance of:

• 45p per mile for the first 10,000 miles driven in the year,
• additional business miles reimbursed at 25p per mile.

You must report payments above this as a benefit on a P11D. If the employee is reimbursed mileage below the approved rates, they can claim tax relief on the balance.

London Congestion Charge

In London, drivers of electric vehicles are exempt from the congestion charge in the Ultra Low Emission Zone.

Need more help?

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Date published 19 Feb 2021 | Last updated 2 May 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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