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Electric Cars: Tax incentives

Updated: Apr 9

Electronic vehicles aren't just the eco friendly pick; there are a number of cash saving incentives to help convince more people to drive electric.


Vehicle tax on electric cars

Vehicle tax, or perhaps more commonly referred to as 'road tax', is the personal tax car owners have to pay depending on the carbon dioxide emissions of their car. How much you pay depends on when your car was first registered, and whether it is a pure electric car or a hybrid.


Pure electric cars are exempt from vehicle tax whilst Hybrid cars are liable for vehicle tax and can pay anything between £0 and £135 per year depending on their CO2 emissions. In addition, cars registered between 1st March 2001 and 31st March 2017 with Co2 emissions less than 100 g/km are also exempt from vehicle tax.


Cars with a list price of more than £40,000 have to pay an additional vehicle tax payment. However, this is waived if you have a zero emission vehicle.


Enhanced capital allowances

When a company buys a new electric car, it can claim an enhanced capital allowance, a type of first-year allowance that allows tax relief to be claimed on 100% of any investment in the same tax year as the purchase was made.


Tax on benefits in kind for electric cars

Benefit in kind is any non-cash benefit of monetary value that an employee receives from the company. If a car is provided to an employee for personal use, the employee must pay some tax on the effective benefit they are receiving, based on the BIK rate of the car's P11D value compared against just receiving an equivalent amount in pre-income tax pay.


The government is able to use the BIK rate as a lever to incentivise employers and company car drivers to choose eco friendly vehicles. The HM Treasury is strongly incentivising full battery electric vehicles (BEVs) using these tax rates with a 2% BIK rate frozen for the next three years.


Electric cars are also exempt from the congestion charge. The current congestion charge in London is £15 per day per vehicle between 07:00 and 22:00 every day. For those businesses or individuals operating in and out of cities with clean air zones, this represents huge savings.









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