Tax incentives from the UK Government for using electric cars

The UK government is keen to achieve its Co2 emissions targets and part of that plan includes encouraging people to switch to electric vehicles. In order to make electric vehicles more attractive to individuals and companies thinking about making the change, they have put in place a host of tax savings and incentives to encourage business uptake. 

Tax on Benefits in Kind (BiK)

Effective from 6th April 2020, fully electric cars will be zero BiK for 2020/21, 1% for 2021/22 and 2% for 2022/23. This rate also applies to hybrid vehicles with a CO2 emissions figure of below 50g/km and a pure electric range of 130 miles. 

As an example a Tesla S compared with a Mercedes S 450 L AMG Line: 

Salary Sacrifice Scheme

Electric vehicles qualify for the Salary Sacrifice scheme, the scheme allows employees to pay for the lease of an electric vehicle through their pre-tax income. This means employees save 12% on their National Insurance contributions as well as 20% or 40% depending on their marginal income tax rate. Since the lease costs are covered by scheme, there are no costs for the employer (other than administration) and there are even savings to be made on the employers national insurance contributions.  The salary sacrifice scheme does not have to be offered to all employees. 

Capital Allowances

Where the Company purchases the electric vehicle as a company car, there is also a corporation tax saving to be made. 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.

Charging and Running Costs

With electricity costs averaging much lower than petrol or diesel, there can be significant savings for those travelling long distances. 

Employers are being encouraged to provide charging facilities at the workplace, the provision is currently exempt from being taxed as a benefit in kind. 

For charging at home, If you have off-street parking suitable for an electric car charger, and an eligible electric vehicle, you could get £350 off the cost of buying and installing an electric charger.