tax-benefits-2

Tax benefits
for electric vehicles

The Government is committed to helping increase the amount of electric vehicles on the road in order to meet ambitious climate change targets and ensure cleaner air quality in major cities.

The way motor tax is structured reflects this priority with a range of incentives like Benefit in Kind (BIK) and salary sacrifice schemes, generous Government grants, National Insurance Savings, the introduction of new bands for EVs from 2020/21, exemptions from Vehicle Excise Duty (VED) and special Capital Allowances for ultra-low emission cars and electric vehicles.

Tax changes from 2020/21

Tax changes which come into effect in 2020/2021 will help to further reduce company car tax bills. Under the plans, zero emission, 100% electric cars will pay no company car tax in 2020/21, just 1% in 2021/22 and 2% in 2022/23.

In addition, the government will introduce five new bands for plug-in hybrids and other electric vehicles which emit 1-50g of CO2/km from 2020/21 which will further benefit those EVs that can drive furthest with zero harmful emissions. There has never been a better time to switch your fleet or business vehicles to electric.

The table below shows the new bands and tax rates for tax years 2020 to 2023

For cars first registered from 6 April 2020

CO2 emissions (g/km)Electric range (miles)2020 – 21 (%)2021 – 22 (%)2022 – 23 (%)
0012
1 – 50>130012
1 – 5070 – 129345
1 – 5040 – 69678
1 – 5030 – 39101112
1 – 50<30121314
51 – 54131415
55 – 59141516
60 – 64151617
65 – 69161718
70 -74171819
75 – 79181920
80 – 84192021
85 – 89202122
90 – 94212223
95 – 99222324
100 – 104232425
105 – 109242526
110 – 114252627
115 – 119262728
120 – 124272829
125 – 129282930
130 – 134293031
135 -139303132
140 – 144313233
145 – 149323334
150 – 154333435
155 – 159343536
160 – 164353637
165 – 169363737
170 and above373737

 

Take a look at our tax calculator to see how much you could save by switching to electric.

For more information, take a look at the HMRC website.

Benefit In Kind and Class 1A National Insurance

Company car benefit-in-kind (BIK) tax rates are set in advance to enable businesses to plan their future outlay on company vehicles and calculate the financial cost to themselves and employees.Like BIK tax, employers’ Class 1A National Insurance contributions, are linked to a car’s CO2 emissions and P11D (purchase cost) value. Table 1 below compares the BIK tax costs for a four year period between 2017 and 2021. It compares a zero emission vehicle with a purchase cost of £30,000 and an identically priced petrol car that emits 104g/km CO2, to show the yearly savings for both lower (20%) and higher (40%) rate drivers.

Vehicle Excise Duty

Pure electric cars are exempt from paying Vehicle Excise Duty (VED) to help support drivers who choose the cleanest, most environmentally friendly cars and vans. All cars that emit less than 75g/km CO2 will pay less road tax in the first year, delivering additional cash savings for plug-in hybrids on your company’s fleet.

Use our car tax calculator for a full breakdown of the EV tax savings available.

Capital allowances

You can claim capital allowances for your business when you buy vehicles that are used in your business. This allows you to deduct the cost of cars you purchase to help your business from your profits before you pay tax.

The rate that you can claim for capital allowance on vehicles depends on the CO2 emissions of the car. For new cars brought between April 2015 and April 2018 you can deduct the full value of the car if CO2 emissions are 75g/km or less.

For cars bought after April 2018 the emissions level to qualify for a full deduction is 50g/km. You can see the full breakdown of all of the new bands of emissions which affect capital allowances here.