Electric Cars: The Tax Benefits

As Cop26 approaches, the world’s attention focuses squarely on the ways in which humans can mitigate the worst impacts of man made climate change. One of the central pillars of that is the gradual phasing out of petrol cars in favour of electric and hybrid vehicles.  

And for many businesses the issue of electric vehicles is moving up the agenda as rules over emissions charging come into force in a number of UK cities. But it’s not just the environmental impact that businesses should consider – switching to an electric vehicles can bring significant tax benefits for businesses.  

Recently, the Treasury introduced a 0% BIK tax rate for pure electric company cars in 2020/21, rising to 1% for 2021/22.  

Company car tax rates had already been published up until 2024/25, with the BIK rate for zero-emission cars rising to 2% in 2022/23 and staying at that rate for the tax years 2023/24 and 2024/25.  

Zero emission cars are also exempt from vehicle excise duty (VED) until at least March 2025. 

The roadmap, published by the Department for Transport (DfT), also says that companies and unincorporated businesses are eligible for enhanced capital allowances when buying a new zero emission car for business use. 

This allows for 100% of the cost of the car to be written off against the taxable income of the period in which it was bought. This, it says, will also be available until March 2025. 

In fact there are now 11 new tax bands for vehicles with emissions of 75g/km and below, some of which are linked to the electric mile range that the vehicle offers. So if you’re thinking of choosing a hybrid vehicle for your business then it’s worth investigating electric car benefit in kind 2020 before you choose. 

The government has also announced the tax rate for the next three years, helping businesses to plan ahead. The electric car tax on benefit in kind rate will increase to 1% in 2021 / 2022 and 2% in 2022 / 2023. 

In addition, cars with CO2 emissions of less than 50g/km are also eligible for 100% first year capital allowances. This means with electric cars, you can deduct the full cost from your pre-tax profits. 

On a car costing around £40,000 this could amount to a tax relief of £7,600 in the first year.