Just last week, Tata, the owner of Jaguar Land Rover, confirmed plans to build its flagship electric car battery factory in the UK. Tata is set to invest £4bn in their Somerset site but this will also be supported by subsidies from the government which are thought to be worth hundreds of millions of pounds.
It’s becoming increasingly clear that electric vehicles are here to stay as they grow in popularity and garner further support from the government. Are electric vehicles the company car of the future? The answer is YES, and right now there are a number of tax advantages that your company could benefit from if you make the switch to electric vehicles – aside from the benefit of reducing your company’s carbon footprint.
The tax allowances currently available on electric vehicles for company use are, so far, only confirmed as far as the 2024/25 tax year. In light of the announcement from Tata, we’ve delved into the various tax measures and schemes that will benefit employers who introduce electric vehicles for business use.
Company car tax
If you already run a company car scheme then you’re probably no stranger to the tax rules of cars as a Benefit in Kind (BiK). As an employer, you’re responsible for paying the National Insurance Contributions on BiKs that aren’t paid in cash. However, electric vehicles are subject to a far more generous BiK rate.
Benefit in Kind tax is calculated according to several factors: the P11D value of the vehicle, the BiK rate of the vehicle, and the employee’s income tax band (20-45%). This is done by the following calculation:
P11D value of the car (including accessories) x BiK tax band x employee’s income tax bracket.
So, for this tax year (2023/24) and 2024/25, the BiK rate for vehicles with CO2 emissions of 0 g/km and 1-50 g/km is 2%. This is, however, set to increase to 3% for 2025/26. So, if an employee bought an electric company car worth £35,000, with a 0 g/km CO2 emission (2%BiK rate) and their tax band was 20% then, as their employer, you would owe £140 BiK tax per year for the next two years (35,000 x 2% x 20%).
If you are considering running an electric vehicle salary sacrifice, there are two government allowances to factor in. Electric cars qualify for a 100% first year allowance (FYA) if they are purchased new, prior to April 2025. This allows you to deduct the full cost of the new car from your company’s pre-tax profits. To qualify, the car must be purchased outright or financed through hire purchase or contract purchase. Employers can also access a government grant of £2,500 that can be deducted from the price of an electric car costing less than £35,000. Together, these allowances could save your company a considerable amount in the long run.
Workplace Charging Scheme
If you weren’t already convinced about electric vehicles, have you considered the Workplace Charging Scheme (WCS)? This is a voucher-based scheme that provides eligible applicants with support towards the upfront costs of the purchase and installation of electric vehicle charge points.
The WCS is open to businesses, charities and public sector organisations that meet specific criteria. The scheme then covers up to 75% of the total costs of the purchase and installation of electric vehicle charge points (including VAT), capped at a maximum of £350 per socket, and 40 sockets across all sites per applicant. It is also worth noting that no taxable benefits arise from providing workplace charge points and electricity when electric company cars are charged at the workplace.
You can find out more about the workplace charging scheme, and fill out an application form, here.
How can we help?
As electric cars become increasingly mainstream, we would recommend making the most of the current tax benefits in place. If you would like to discuss how these relate to your business, please do not hesitate to get in touch with our tax team at firstname.lastname@example.org.