What tax relief is available on electric vehicles?
Electric vehicles are becoming increasingly popular as fleet vehicles with business owners realising the benefits of having tax relief and, in some cases, exemption from congestion charge payments.
The Government is committed to helping increase the number of electric vehicles (EVs) on the road in order to meet climate change targets and ensure cleaner air quality in major cities.
There are three types of cars available in the UK that have some form of electric propulsion. These are ‘pure electric’ or ‘plug-in’ cars, which have electric propulsion systems only and no petrol or diesel engine; hybrid cars with a combination of electric and diesel or petrol (these can be plugged in); and ‘conventional’ hybrids, which cannot be recharged by plugging in.
The way motor tax is structured reflects this priority with a range of incentives such as Benefit in Kind (BIK) and salary sacrifice schemes, grants, National Insurance Savings, the introduction of new bands for EVs from 2020/21, exemptions from Vehicle Excise Duty (VED) and special Capital Allowances for ultra-low emission cars and electric vehicles.
The tax changes, which come into effect on 6 April this year, will help to further reduce company car tax bills. Under the plans, zero-emission, 100 per cent electric cars will pay no company car tax in 2020/21, then 1 per cent in 2021/22 and 2 per cent in 2022/23.
On top of this, the Government will introduce five new bands for plug-in hybrids and other electric vehicles which emit 1-50g of CO2/km from 2020/21 which will further benefit those EVs that can drive furthest with zero harmful emissions.
However, electric cars still only make up a tiny percentage of cars on UK roads, although the number is predicted to surge over the next two years. The only caveat is that the National Grid will need upgrading to cope with increasing demand.