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What Are The Tax Benefits and Costs For Electric Cars?

With an increased focus by the government on climate change and plans to ban new petrol and diesel car sales by 2030, last year saw the biggest annual increase in purchases of electric cars with 74% of electric cars being registered!

Many business owners are now considering purchasing electric cars either for themselves or for their employees because of the tax benefits and the environmental impact it can have.

What does HMRC view as a company car?

Depending on what you are using the vehicle for, HMRC will treat it as a taxable benefit (benefit in kind) for tax purposes if the car is used for personal reasons.

What is the benefit in kind on electric cars?

The benefit charge works in the same way as the company car calculations but a key advantage of electric cars is the favourable benefit in kind rates, the current rate for 22/23 is 2%.

There is also no fuel benefit to employees on electric cars which can significantly reduce the Class 1a NIC for employers.

However, there are tax implications relating to the recharging of the battery such as:

If the employer is providing the electric car then the company can pay for the recharging without a benefit in kind implication, this is also the same for charging points to be installed at the employee's home and if the company is paying for the electricity.

If the employee uses their own car for business their battery is recharged from a charging point at work or from an employer-installed charging point at the employee's home, then a taxable benefit will arise based on the cost to the employer.

Mileage allowance:

The current advisory mileage rate for fully electric cars is 5p per mile.

Capital allowances

Providing the car is fully electric (0g/km of CO2) then 100% first year allowances are available for both companies and self-employed businesses (restricted to business use).

This means the cost of the car and electric charging point can be deducted from profits before you pay tax which can have a significant tax saving!

However, leased cars do not qualify for this allowance.


VAT cannot be claimed on cars purchased even if it is electric.

When the electric car is leased, 50% of the VAT paid on the leasing charge can be recovered.

There is a Plug-In Car grant administered by the Office for Low Emission Vehicles (OLEV) which is paid directly to the car manufacturer to discount the price of approved vehicles. This does not apply to all low emission cars, only those approved by the government.

Want To Chat?

If you would like to have a chat with one of the team if you are thinking of changing to an electric vehicle or if you have recently changed and want to know about the tax implications for your circumstances, get in touch. 01788 815017

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