What electric car tax benefits can I get?
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As fuel costs soar and environmental concerns grow, savvy drivers are turning to electric vehicles (EVs) for more than just eco-friendly transportation. The UK government is sweetening the deal with a range of tax incentives, making EVs an increasingly attractive option for both personal and business use.
This article unpacks the various tax benefits available to EV drivers, from significant savings on company car schemes to exemptions from congestion charges. Whether you’re considering leasing an electric company car or exploring salary sacrifice options, we’ll guide you through the main potential financial advantages of going electric.
Electric car tax benefits in the UK
Car tax, which is officially called vehicle excise duty (VED), is something that the main driver of every car, van or motorbike needs to pay in order to drive legally on UK roads. The rate that drivers pay for car tax depends on the vehicle’s emissions.
Until 1st April 2025, all fully electric cars are exempt from paying car tax. They are also exempt from paying the additional surcharge that is levied on petrol, diesel and hybrid cars with a new value of more than £40,000. This charge is paid for the first five years of ownership.
Even though drivers of electric vehicles currently pay no car tax, they must still follow the process to tax their vehicle with the DVLA each year, although no payment will be due.
After 1st April 2025, car tax for brand-new EVs will be equalised with petrol and diesel cars, so there will be a first-year rate for brand-new electric vehicles (currently £10), then from the second year, a new flat rate will be charged for electric cars. This rate is currently £190 a year at the time of writing. The extra supplement for electric cars over the new value of £40,000 will also be introduced, which is currently £410 per year for the first five years of ownership.
Congestion zone tax benefits of electric cars
While congestion charges are not strictly called a tax, essentially, they are a tax on the drivers of petrol, diesel and hybrid cars who choose to drive in clean air zones within various cities around the UK. There is a daily charge to drive in these zones, unless you drive an electric car or van, in which case, you are exempt.
The daily charges do vary, depending on the location and the size and type of vehicle being driven, but most congestion charges in charging clean air zones have a daily fee of between £8 – £12.50 to drive there. This could mean that an electric car being driven within London’s ULEZ area, five days a week, for 48 weeks of the year, would save the driver £3,000 a year in these charges alone.
The clean air zone exemptions for electric vehicles are due to end in December 2025.Find out more about clean air zones in the UK and London’s ULEZ area.
Benefit-in-kind tax on electric cars
Benefit-in-kind (known as BiK) is a tax that employees pay on any benefit they receive from their company, including if they use a company car for personal driving. In most cases, this will be if an employee leases a company car, including through a salary sacrifice scheme.
Before explaining how it works for electric cars, it’s important to understand how BiK on company cars works in general.
BiK is calculated on a combination of factors, which are:
- The car’s price (known as the P11D value)
- The amount of CO2 emitted by the car
- The income tax band that the driver is in
The way it works might be best explained with an example:
Say a car has a P11D value of £29,560 and emits 126g/km of CO2. This puts it in the 30% BiK rate, so 30% of the P11D would be £8,868.
If the driver is in the 20% income tax band, they would need to pay 20% of the £8,868, which is £1,774 a year (or just under £148 a month) and if they are in the 40% income tax band, the annual tax due is £3,547 (or just under £296 a month). This is deducted from the employee’s pre-tax salary.
The higher a vehicle’s emissions, the higher a percentage of the P11D that is taxed. For example, a car with CO2 emissions of 170g/km has a BiK rate of 37%.
The great news for drivers of electric cars, which have zero exhaust emissions, is that their BiK rate is significantly lower than standard petrol, diesel or hybrid cars. In 2024/25, the BiK rate on electric cars is 2%, which will rise to 3% the following year, 4% the year after that, and be 5% in 2027/28.
This means that in 2024, an electric car worth £35,000, with a BiK rate of 2% and a driver in the 20% income tax band will only pay £140 a year (or just under £12 a month) in BiK tax. A driver in the 40% income tax band would pay £280 a year (just over £23 a month) in BiK tax.
This is a significant saving and makes it much more tax-efficient for those leasing company cars to choose an electric vehicle. Take a look at our blog all about BiK rate and EVs for more information.
Other electric company car tax benefits
Salary sacrifice electric car tax benefits
If you lease an electric company car through your employer’s salary sacrifice scheme, there are more tax savings to be had.
This is because an employee sacrifices a portion of their salary each month for the car payment, but this is taken before income tax and National insurance are deducted from the pay. This means that the tax and National Insurance contributions (NICs) are calculated on a lower sum, and the employee therefore pays less of both when compared to what they’d pay without the salary sacrifice.
Find out more about salary sacrifice electric car schemes.
Mileage allowance for electric cars
The mileage allowance you can claim back for electric vehicles is different, depending on whether it’s your own private vehicle being used for business purposes, or a company car.
For a private electric vehicle, perhaps being leased on a personal contract hire agreement, for every mile that the car is used for business (excluding commuting to and from the usual place of work) is 45p a mile for the first 10,000 miles a year, then 25p a mile after that.
For an electric company car, at the time of writing, the HMRC advisory fuel rate is 8p a mile. This rate is reviewed every four months so can change frequently throughout the year. This 8p per mile is not taxable.
Fuel tax for electric cars
When a driver fills up their petrol or diesel car at the pump, they are essentially taxed twice for the fuel being bought. This is because there are two separate taxes on these fuels. These are currently:
- 52.95p duty per litre on petrol and diesel
- 20% VAT on the product price set by the retailer (which already includes the duty).
With electric cars, there is no duty to pay currently on the electricity used to charge the vehicle, but there is VAT paid on it.
The rate of VAT for charging an electric vehicle actually depends on how/where it is being charged. If charged at home, the VAT rate is 5%, as that is the rate charged on domestic electricity use.
If charging at a public charging station, the VAT rate is 20%.
Either way, this does mean that electric car drivers pay significantly less tax on the fuel that runs their vehicle than petrol, diesel and hybrid drivers do.
As this article has explained, there are several areas in which electric car drivers can gain tax benefits and make savings, when compared to driving an equivalent petrol, diesel or hybrid car. So, whether you are looking for a new electric company car or a personal lease EV, We can help you make the switch to driving electric and start saving on your vehicle tax costs. Find out more.
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