The government is committed to helping increase the number of electric vehicles (EVs) on the road in order to meet ambitious climate change targets as part of the Road to Zero initiative, which will improve air quality in major cities. The way motor tax is structured by the government reflects this priority, there’s currently a range of incentives for those choosing EVs.
- Low Benefit-in-Kind tax (BiK)
- Preferential tax position for salary sacrifice schemes
- Government grants
- Employer’s Class 1A National Insurance savings
- Exemptions from Vehicle Excise Duty (VED)
Leave taxes behind
Electric and low-emitting vehicles can offer real financial benefits and cost savings compared to petrol and diesel equivalents. This is especially true when it comes to things like taxes and congestion charges.
Benefit-in-Kind (BiK) at 0%
- For tax year 2020/21 the company car tax percentage for a fully electric, zero emitting vehicle is 0%, which means you will pay £0 Benefit-in-Kind (BiK) tax for that year
- In 2021/22 the percentage is only 1%, rising to 2% for 2022/23, 2023/24 and 2024/25 – considerably lower than a typical petrol or diesel company car tax rate
Pay zero road tax
- The first-year road tax for a vehicle with emissions of 50g/km CO2 and below is £0, compared to a 130g/km CO2 diesel at £215
- For subsequent year road tax, a petrol or diesel car would pay £150 per year, whereas the electric will continue to pay £0
- Until March 31 2025 electric cars are also exempt from the £325 VED supplement, which is paid for cars with a list price over £40,000
The plug-in car grant
To help the government to achieve its Road to Zero targets it has incentivised the take-up of lower emitting vehicles. One of these incentives is known as the plug-in car grant, which offers a discount of up to £2,500 on the price of a brand-new low-emission vehicle.
Which vehicles are eligible?
The following low-emission vehicles are eligible for the plug-in grant:
- The grant will pay for 35% of the purchase price, up to a maximum of £2,500 for cars priced below £35,000. Cars must be able to travel at least 70 miles with zero emissions
- For vans, the maximum available is £3,000 for a small van and £6,000 for a large van, with eligibility criteria of less than 50g/km CO2 and ability to travel at least 60 miles without any emissions at all
- For the first 250 truck orders placed, the grant covers 20% of the purchase price, up to a maximum of £16,000. This is limited to 10 per customer. After the order limit is reached, a maximum grant of £6,000 will apply. These vehicles must have CO2 emissions at least 50% less than the equivalent conventional Euro 6 vehicle that can carry the same capacity. They must also be able to travel at least 60 miles without any emissions at all
Vehicle category types
For more information on all vehicles, including motorbikes, mopeds and taxis, visit gov.uk.
Electric vehicles are more expensive to manufacture than traditional combustion engine vehicles, as such the government grant offsets some of this initial up-front cost. The grant is available regardless of whether you buy, contract hire or personal lease an electric vehicle. When leasing, the grant will be taken into account when calculating the repayments payable.
Electric vehicle homecharge scheme
The good news is all cars (category 1, 2, and 3), vans and larger electric motorbikes can get up to £350 towards the cost of installing a charger at home through the Electric Vehicle Homecharge Scheme. Find out more about electric vehicle charging.