So, how are electric cars taxed?
There are two angles we will look at this from, firstly from the point of view of the individual who is in receipt of the electric car, where the car is owned by the company. Under the company car tax rules, a taxable benefit arises in respect of the private use of that car. The taxable amount is based on the CO2 emissions and the list price of the car, after any deduction that the individual in receipt of the car makes towards the cost. This is referred to as a benefit-in-kind (BIK) and the tax is paid based upon the tax bracket the employee falls into. The tax due from the employee is collected either via their PAYE tax coding notice, or via a Self-Assessment Return.
The owner of the car, in this instance being the company, incurs a Class 1A National Insurance charge, which is reported to HMRC via a P11D form. The amount the company has to pay is again based upon the CO2 emissions and the list price of the car, however is taxed at a fixed percentage of 13.8% (This was 14.53% for 2022/23).
How would purchasing an electric car save me in tax?
You can claim capital allowances on electric cars to offset against your profits and therefore reduce your tax due.
For electric cars purchased after 1st April 2021, the rate you can claim as a capital allowance depends upon the CO2 emissions, and whether the car was new and unused, or second hand when you purchased it.
For electric cars or cars with CO2 emission of 0g/km, you are able to claim first year allowances of 100% of the cost of the car. Purchasing a car for £30,000 in this instance would result in your taxable profits for the year reducing by the full £30,000.
For second hand electric cars, or cars with CO2 emission of between 1g/km and 50g/km, you are able to claim main rate allowances of 18% of the cost of the car. Using the same example car above, you would reduce your taxable profits by £5,400 in the first year of owning the car (£30,000 x 18%). In subsequent years the company would continue to claim capital allowances on the reducing balance of the car.
New or second hand cars where the CO2 emissions are above 50g/km are subject to the special rate allowances, a percentage claim of 6% each year on the reducing balance. As per our example above, in your first year you would see capital allowance claims of just £1,800.
As you can see from the figures, the more eco-friendly the car is in terms of the CO2 emissions, the more appealing the tax advantages.
What are the Benefit-in-Kind rates for company cars?
The table shown below shows how the percentages rates for BIK charges vary by the vehicle’s CO2 emissions, and the electric-only range. You can see the percentages for cars powered by petrol, diesel, hybrids and electric. Please note the table below only shows the BIK rates for April 2022 to March 2025, for models that were registered after 6th April 2020. For details on cars registered before this date, please get in touch with our team and we will be happy to help.
Do the government provide any support for electric cars?
The government offers a number of grants and advantageous tax breaks to owners of low and zero-emission vehicles.
Plug-in Car Grant: This grant can help you save money by knocking up to £2,500 off the upfront cost of a low-emission vehicle. You do not need to do anything if you are wanting to purchase one of these vehicles – the dealer will include the value of the grant you are eligible for in the vehicle’s price.
Road Tax Savings: Driving a low-emission vehicle can substantially reduce the amount of Vehicle Excise Duty (commonly known as road tax). Driving a zero-emission vehicle results in a complete exemption from road tax – although don’t forget you need to tax your car even if there is nothing to pay!
Electric Vehicle Chargepoint Grant: This provides grant funding of up to 75% towards the cost of installing electric vehicle smart charge points at domestic properties across the UK. It replaced the Electric Vehicle Homecharge Scheme (EVHS) on 01 April 2022.
For any further details or if you are considering purchasing an electric vehicle, please do not hesitate to get in touch with our team!