Electric Company Car Tax Benefits in the UK

Car Owl

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Summary

• Electric company cars have major tax benefits: Very low Benefit in Kind rates.
• 2024/25 BIK rate is just 2%: Compared to up to 37% for petrol cars.
• Save thousands per year: Both employees and employers benefit.

Choosing an electric company car can save you a significant amount in tax. Here's how the benefits work.

What Is Benefit in Kind (BIK)?

When your employer provides you with a company car, it's considered a taxable benefit. You pay income tax on this benefit based on:

• The car's list price (P11D value)
• The BIK percentage rate
• Your income tax bracket

Electric Car BIK Rates

The government sets very low BIK rates for electric vehicles:

Compare this to petrol or diesel cars which can be 20-37% depending on emissions.

Example Tax Calculation

For a £40,000 car and a 40% taxpayer:

Electric Car (2% BIK)

• Taxable benefit: £40,000 × 2% = £800
• Annual tax: £800 × 40% = £320

Petrol Car (30% BIK)

• Taxable benefit: £40,000 × 30% = £12,000
• Annual tax: £12,000 × 40% = £4,800

That's a saving of £4,480 per year just by choosing electric!

Benefits for Employers

Companies also benefit from electric company cars:

• Lower Class 1A NI: Based on the lower BIK value
• 100% first-year allowance: Write off the full cost against profits
• Lower running costs: Electricity is cheaper than fuel
• No fuel benefit charge: If no private fuel is provided

Salary Sacrifice Schemes

Many employers offer electric cars through salary sacrifice:

• You give up some salary in exchange for a car
• Saves income tax and National Insurance
• Often includes insurance, maintenance, and breakdown cover
• Very cost-effective for electric cars

Learn more in our guide to EV salary sacrifice.

Charging Benefits

Workplace Charging

If your employer provides free charging at work:

• No taxable benefit
• Free fuel essentially
• Available since 2018 rules

Home Charging

If employer pays for home charging:

• Can be tax-free if properly structured
• Employer can reimburse at advisory rate
• Currently 9p per mile for EVs

What About Plug-in Hybrids?

Plug-in hybrids (PHEVs) have higher BIK rates than pure EVs:

• 5-12% depending on electric range and emissions
• Still better than petrol or diesel
• Pure electric offers the biggest savings

Things to Consider

• Home charging: Most convenient if you have off-street parking
• Range: Consider your typical journeys
• Charging network: For longer trips
• Residual values: EVs currently holding value well

Is an Electric Company Car Worth It?

For most drivers, yes. The tax savings alone often make EVs the cheapest option, even before considering:

• Lower fuel costs
• Reduced maintenance
• Congestion charge exemption (in London)
• Clean air zone exemptions

Check if a car meets clean air zone rules with our ULEZ checker. For more on electric cars, see our ultimate guide to electric cars.

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