In the UK, businesses make up nearly half of the new car market. With over 700,000 company car drivers, the government has been using tax incentives for the past two decades to encourage the demand for vehicles with low CO2 emissions.
Company car tax bands are regularly adjusted each April at the start of the financial year, and they are subject to constant change. These tax bands have stimulated demand for diesel and hybrid cars in the past, but currently, the biggest savings are offered for electric vehicles. This has led to more businesses opting for battery-powered vehicles, with over half of new business contract hire deliveries being electric, according to the British Vehicle Rental and Leasing Association.
Due to the increasing selection of electric vehicles, improved range capabilities, and better charging infrastructure, electric company cars are becoming an obvious choice. Here’s why:
How much cheaper is the tax on electric company cars?
If you have a lot of business mileage, you might be fortunate enough to have a company car provided by your employer. These cars, often considered a top-tier job perk, are typically brand new, fully maintained, and accessible outside of work hours, much like privately owned vehicles. However, opting for a company car comes with tax implications.
HMRC categorizes company cars as a “benefit in kind” (BIK), which includes most perks provided on top of your salary. Tax bills for company cars can vary significantly, but the system heavily favors cars with lower tailpipe CO2 emissions. This means that electric vehicles, which produce no tailpipe emissions, receive the largest tax discounts.
The calculation for company car tax is simpler than it may appear. Each company car is assigned a “taxable value,” which is a percentage of the list price based on its CO2 emissions (ranging from 2% to 37%). These tax bands will remain frozen until April 2025, meaning that electric vehicle drivers are currently taxed based on only 2% of the list price until that date. In comparison, even the most fuel-efficient petrol, diesel, or “self-charging” hybrid cars are taxed at 25% or more.