Company car tax on electric cars
If you’re trying to decide whether an electric car is a good business move or you want to find out what the company car tax benefits on electric cars are, you’ve come to the right place. We’ll tell you whether it’s worthwhile, we’ll explain how company car tax works, outline the key advantages, and provide helpful comparisons, incentives, and answers to frequently asked questions.
Does company car tax on electric cars make it worthwhile?
Company car tax (CCT) on electric cars has been strategically used by the UK to promote the use of electric vehicles (EVs) in companies. This works by offering significantly lower benefit-in-kind (BIK) tax rates for zero-emission cars compared to their petrol and diesel counterparts. Thanks to this, businesses are incentivised to choose EVs. The BIK rate for fully electric cars in the tax year 2024/2025 is at a very low 2% of the car’s taxable list price, though that could be changing.
To make sure it’s fair across the board and to account for the increased EV uptake over the years, the government has outlined a gradual increase in BIK rates for electric cars. From April 2025, the rate will rise by 1% annually for the subsequent three tax years:
- the rate will be 3% in 2025/2026
- 4% in 2026/2027 and
- 5% in 2027/2028
Despite this making the company car tax on electric cars slightly more expensive, it will still be a fair amount cheaper than using combustion engine vehicles, which reinforces the government’s commitment to promoting electric cars in the UK.
What is company car tax?
In the UK, "company car tax" refers to benefit-in-kind (BIK) tax, levied on employees who are given a company car for private or business use. The employee is liable for the tax, which is calculated based on the car's list price, its CO₂ emissions and the employee's income tax bracket.
As the employer, you don’t typically pay the BIK tax directly, but you are responsible for reporting the benefit to the HM Revenue and Customs (HMRC) and making sure the payment for the tax is deducted from the employee’s salary through payroll. It's important to note that the BIK rules primarily apply to cars.
Unlike company cars, vans have a much simpler benefit-in-kind (BIK) tax structure. Instead of being based on the vehicle's value and CO₂ emissions, most vans have a fixed flat-rate BIK charge. Zero-emission vans currently have a 0% BIK rate, offering a significant tax incentive for businesses to choose electric vans. This nil rate is set to continue for the foreseeable future.
How company car tax works
It's important to understand how company tax works in the UK so your business and employees can get the most benefit. It's not a straightforward tax but rather a system of taxing a valuable employee perk.
Benefit‑in‑kind (BIK) Tax & P11D value
As a perk of having a company car available for personal use, a benefit-in-kind (BIK) tax is levied on the employee. The BIK value is calculated by multiplying the car's P11D value by the relevant BIK percentage.
The P11D value is the car's list price when new, including any factory-fitted options, value added tax (VAT) and delivery charges. It excludes the car's first registration fee and annual road tax, called vehicle excise duty (VED).
VAT treatment on company cars
Businesses cannot reclaim VAT on the outright purchase of a company car unless it is used exclusively for business (no private use). When a car lease or hire is used for private or mixed purposes, only 50% of the VAT on lease charges is recoverable. Vans and other commercial vehicles differ, though. 100% of VAT on purchased or leased vans or commercial vehicles can be reclaimed if used only for business. Including VAT in a subscription fee, like SIXT business car subscription does, removes large up-front VAT outlays and simplifies cash flow, but it does mean VAT cannot be separately reclaimed from the supplier.
2025 tax policy changes
There are changes coming in April 2025 for company car taxes in the UK. If an employee has an electric car through your company, the tax paid on this perk (called benefit-in-kind, or BIK) is going up from 2% to 3%. It will keep going up by 1% each year after that. Changes are also happening to VED rates in 2025. If you get a new EV after April 2025, you'll have to pay road tax (VED), which didn't apply to EVs before.
One big change is for double-cab pickup trucks that can carry over one tonne. If the vehicle is used for personal trips, it will be taxed like a regular car instead of a van, which could cost you more unless your company bought or ordered it before April 2025.
Electronic car vs petrol car comparison
When you compare a £40,000 pure EV to a plug-in hybrid or a petrol car, the numbers speak volumes. In 2024/25, a 2% BIK rate on a £40,000 EV has a taxable benefit of £800, so a 40% taxpayer pays just £320 on their company car tax in 2025. In contrast, a plug-in hybrid with CO₂ emissions low enough to qualify for a 6% BIK rate costs £960, while a petrol car at 120 g/km CO₂ (BIK rate 29%) would cost £4,640 in tax annually.
| Vehicle type | P11D value | BIK % 2024/25 | Tax rate | Annual tax |
|---|---|---|---|---|
Electric car (£40,000 list) | £40,000 | 2% | 40% | £40,000 × 2% × 40% = £320 |
Plug-in hybrid car (≥70 mile) | £40,000 | 6% | 40% | £40,000 × 6% × 40% = £960 |
Petrol car (120 g/km CO₂) | £40,000 | 29% | 40% | £40,000 × 29% × 40% = £4,640 |
Taxation of electric company vans
Company car tax on electric cars works differently for vans. Electric company vans benefit from a nil van-benefit charge and, provided the employer supplies electricity at no cost, a nil fuel-benefit charge through the 2025/26 tax year. From April 2025, the flat-rate van-benefit charge will be uprated to £4,020, but zero-emission vans stay exempt until 5 April 2026. After that date, non-zero-emission vans pay the full charge. A separate flat-rate fuel-benefit charge applies when an employer supplies fuel for private van journeys. For 2024/25, this charge is £757; it rises to £769 from April 2025, but does not apply to electric vans when electricity is employer-provided. Employers must report all P11D benefits and pay Class 1A National Insurance on any taxable amounts.
Electric vehicle incentives for businesses
There are several ways the government can provide support if you are considering incorporating electric vehicles into your business operations. One is the OZEV Workplace Charging Scheme (WCS). This gives a company money back – up to three-quarters of what it costs – to buy and put in EV chargers where your employees work. There's a limit to how much you can get back per charger and in total. You can find out if your business qualifies for this and how to apply on the government's website.
Companies can also claim 100% first-year capital allowances on EV charging equipment under enhanced capital allowances.
Besides this, there might be other energy grants to make your business more energy-efficient, so it's a good idea to check with local business support centres.
Benefits of using electric cars in company fleets
Apart from the headline tax cuts, electric cars have much lower running costs: electricity typically costs under 7p per mile (advisory rate), compared to 15-20p per mile for petrol. There are also lower maintenance costs and downtime for EVs. From a corporate standpoint, using EVs supports net-zero targets, improves credentials and can boost staff satisfaction and retention by giving them an attractive, low-cost perk.
What to know about company car tax on electric cars
When calculating electric company car tax, multiply the car’s P11D value (list price + VAT + options) by the BIK rate, then by your marginal income tax rate.
The current BIK rate in 2025 is 2% and is set to go up by 1% every following year until 2027 when it reaches 5%.
A few of the changes to electric company car tax to expect in 2025 include, expecting BIK to rise to 3%. Electric vehicles registered on or after 1 April 2025 will no longer be exempt from Vehicle Excise Duty (VED). These vehicles will incur a first-year charge of £10, followed by the standard annual rate of £195 from the second year onwards.
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