Wondering about company car tax implications for EVs? Wonder no more…
Company cars may not be as common a perk as they once were, but around a million people still get this benefit, and an electric car can make a great choice for a company vehicle due to hugely favourable tax implications, as we’ll explain here.
What is company car tax?
If you use your company car for personal use as well as for work, this is seen as a benefit. You pay tax on the value of that benefit. This is known as company car tax (or sometimes Benefit in Kind tax), and it’s based on the car’s value, CO2 emissions, and your income tax bracket.
The system is designed to encourage employees to choose cars with low emissions, as these are better for the environment. So, a gas-guzzler sits in a high company car tax band, while a fuel-sipping hybrid is in a low tax band.
The lowest tax rates of all are reserved for electric cars which have no exhaust emissions. An employee who chooses an electric company car over a petrol or diesel will pay far less company car tax than a colleague who runs a car with an internal combustion engine.
Our in-depth guide to company car tax has more details.
How does company car tax work?
As set out above, the amount of company car tax you pay is determined by how much the car is worth, and how much CO2 it emits, while your own personal tax bracket also comes into play.
Benefit in Kind (BiK) rates range from 2% to 37%, with the most polluting cars occupying the higher percentage range, and EVs attracting a 2% rate.
How much a car costs is known as its P11D value by the taxman. This price is determined by the cost of the car plus VAT, options and delivery charges from new. It doesn’t include Vehicle Excise Duty and the cost of first registration, so it’s slightly lower than a car’s on-the-road price.
How much is tax on electric company cars?
The present BiK rate for electric cars is 2%, but that’s soon to change.
At the end of the 2024/25 tax year the tax rate will rise by 1% in the following three years (IE in 2025/26 it will be 3%; in 2026/27 it will be 4%; and in 2027/28 it will be 5%). This will increase the cost of running an electric vehicle as a company car, although these rates are still far lower than those for a conventional petrol or diesel car, which might attract BiK of 25% or more.
So, at present, 2% of an electric car’s value is taxable, but there will be a 1% rise for the next three years.
Let’s say you have an electric company car costing £40,000; 2% of £40,000 is £800 – that’s the amount of the car’s value that is taxable.
But you don’t pay all that taxable value: you pay a percentage of it based on what tax bracket your salary puts you in.
If you are a 20% tax rate payer, every year you will pay 20% of £800, so will owe the taxman £160 a year.
If you are a 40% tax rate payer, every year you will pay 40% of £800, so will owe the taxman £320 a year.
Company car tax comparison
Just to highlight how attractive electric company cars are, let’s compare the one above with a petrol model. We’ll use a 40% tax bracket employee and a £40,000 car in both instances for the sake of simplicity.
The EV driver pays 40% of 2% of £40,000 a year to the taxman, which is £320 a year, or £26.67 a month.
The petrol car emits 130 grams per kilometre (g/km) of carbon dioxide (CO2), so that car sits in the 31% BiK rate for this financial year.
With 31% of £40,000 being £12,400, a 40% tax-bracket employee would pay £4,960 a year, or £413.33 a month, in tax.
You would therefore be looking at an annual saving of over £4,500 if you went for the electric option.
What about tax on hybrid company cars?
Company car BiK rates are also determined by how far a car can travel in battery mode. For EVs, clearly, this is a big figure, but for hybrids it can be quite a small one.
Conventional hybrids, which can’t be charged from a plug, can generally travel less than a mile in electric mode, while they also generally emit more than 50g/km of CO2, so to all intents and purposes they are treated like conventional petrol and diesel cars by the taxman.
Plug-in hybrids (PHEVs), however, tend to officially emit less than 50g/km of CO2, and can cover a significant distance in battery mode, so receive more favourable treatment.
The further a PHEV can travel on battery power, the lower its BiK rate. Assuming all PHEVs in question emit under 50g/km of CO2, these rates are:
- If a PHEV can travel less than 30 miles in battery mode it gets a 14% BiK rate in the 2024/25 financial year.
- If a PHEV can travel 30-39 miles in battery mode it gets a 12% BiK rate in the 2024/25 financial year.
- If a PHEV can travel 40-69 miles in battery mode it gets an 8% BiK rate in the 2024/25 financial year.
- If a PHEV can travel 70-129 miles in battery mode it gets a 5% BiK rate in the 2024/25 financial year.
- If a PHEV can travel over 130 miles in battery mode it gets a 2% BiK rate in the 2024/25 financial year (effectively being treated like a full electric car by the taxman).
Do note, though, that the most sophisticated PHEVs can only manage around 70 miles officially in electric mode, so categories that are based on a higher mileage than this are effectively future-proofed for PHEVs to come.
Like electric cars, the rates for PHEVs are going up from April 2025. There are 1% increases for each year for the next three financial years.
Are electric vans liable to company car tax?’
This depends on how the van is used, and whether it is an electric van.
If a petrol or diesel van is only used for work purposes (including commuting), then you don’t pay any tax on it.
If you make “insignificant” personal use of a petrol or diesel van – EG an occasional run to the tip, or dropping a child off at school on your way to work – then there is also no tax to pay.
If, however, you make “significant” personal use of the van – EG treat it as you would a personal car, using it to visit friends every weekend – then a petrol or diesel van is subject to a flat taxable amount of £3,960 for the 2024/25 financial Year; if you are a 20% tax-rate payer, you will pay 20% of this, so £792 a year.
If, however, the van is electric, you do not pay this at all, even if you use the van as a personal vehicle in your free time.
What other incentives are there for businesses to go electric?
Businesses are being encouraged to get staff into electric cars with a number of other methods.
These include:
Workplace Charging Scheme
This provides 75% of the purchase and installation costs of EV charge points at a workplace, up to a maximum of 350 per socket, and 40 sockets per site, per applicant – IE one company can get 40 grants for 40 sockets at one location, or 40 grants for 40 sockets spread over 40 locations.
Plug-in vehicle grants
Companies can also get Government grants for electric vans, trucks and taxis. These range from Grants vary in size depending on the type of vehicle, with small vans eligible for a grant of up to £2,500, and large trucks getting up to £25,000 contributed by the Government.
Reduced employer NICs
Employers must pay National Insurance contributions (NICs) on salaries, and also employee benefits like company cars. NICs for company cars are based on vehicles’ carbon dioxide emissions, so rates are far more favourable if an employer provides an electric company car.
Reduced car tax
Electric cars are currently exempt from car tax (vehicle excise duty), although from 2025 they will be treated like petrol and diesel cars for the annual car tax payment.
Other incentives
Electric company vehicles are also subject to favourable capital claim allowances, meaning firms can deduct more of their value from company profits for the purposes of tax calculations.
Salary sacrifice schemes are also more attractive for electric cars, while other benefits include an appealing advisory fuel rate for EV charging that your business pays for, plus exemption from emission and congestion charges, should your vehicles attract these as part of the work they are used for.
Have you considered salary sacrifice?
We’ve partnered with Corparison to help you find out more about how you could enhance your business by implementing rewarding schemes like salary sacrifice.
Corparison are backed by a leading panel of funders which means they can offer the most cost-effective salary sacrifice deals for your staff, across every make and model.
Enquire with Corparison today with just a few basic details about your business to see how they can support you. Their expert team are ready to help you enhance your employee benefits to a whole new level.
Do electric cars make good company cars?
Purely on a taxation basis, EVs make fantastic company cars; the savings are significant, and clear to see.
There are a couple of things to bear in mind, though: the first is that electric cars, while coming down in price, still tend to be more expensive than comparable petrol and diesel cars, so the vehicle itself may be more expensive for companies to procure, and its taxable P11D value will be higher (though this latter aspect is more than offset by the reduced BiK rate EVs attract).
Companies will also need to consider the mileages staff travel, factoring in recharging time if staff cover big distances, and whether employees are able to charge their vehicles at home overnight.
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