Electric Vehicles & Your Business: Are You Claiming All the Tax Benefits?

More and more of our clients are asking about making the switch to electric cars and vans. It’s a big decision, and understanding the tax benefits is a key part of the equation. So, let’s break down the tax incentives currently available for zero or low-emission vehicles in the UK.

Boost Your Savings with Electric Car Salary Sacrifice

For higher or additional rate taxpayers, leasing an electric car through a salary sacrifice scheme can be a smart move. Instead of paying for the lease from your net income (after tax), the sacrifice is deducted from your gross income before tax and National Insurance.

Here’s why it’s beneficial:

• Reduced Income Tax: If you’re close to the threshold of a higher tax band, salary sacrifice could potentially lower your taxable income, pushing you into a lower rate.
• Lower National Insurance: Your National Insurance contributions will also be reduced as they’re calculated on your post-sacrifice salary.
• How it Works: Your employer leases the electric car and then allows you to “rent” it from them in exchange for a portion of your salary.

Electric Vans: A Tax-Efficient Investment

Investing in an electric van can be incredibly tax-efficient for businesses, especially if there’s also an element of private use. Excitingly, from April 2025, there are no tax implications for using a company-owned zero-emission van outside of business hours.

Just like electric cars, electric vans can also be acquired through salary sacrifice schemes, offering similar tax advantages for employees.

Road Tax (Vehicle Excise Duty) on Electric Vehicles

Another financial perk of going electric is the road tax. Currently, the rate for 100% electric vehicles is just 3% of the vehicle’s list price. While this is set to increase to 9% by 2030, it’s still a significant saving compared to petrol or diesel vehicles. It’s important to note that road tax is payable on electric vehicles.

Supercharge Your Savings with Capital Allowances

To encourage the adoption of electric vehicles, the government introduced first-year capital allowances after April 2021 for brand new, zero-emission electric cars and vans.

What does this mean for your business?

• 100% Tax Relief: Subject to available profits, your business can claim 100% of the cost of the new electric vehicle or van in the year of purchase.
• No Upper Limit: There are no restrictions on the vehicle’s value for this allowance.

This can significantly reduce your taxable profits in the year of purchase, making the investment even more attractive.

Charging Up at Work: Tax-Free Benefits

There are also tax advantages related to charging electric vehicles:

• Free Workplace Charging: If your employer provides free electric vehicle charging facilities at or near your workplace, this does not count as a taxable benefit in kind (P11D) for employees.
• Employer-Paid Charging: When your employer directly pays for charging company electric vehicles or reimburses employees for the cost, this falls outside the usual fuel benefit rules, meaning no taxable benefit in kind arises.

Claiming Mileage for Private Electric Vehicles Used for Business

If you use your own electric car for business journeys, you’re entitled to claim a tax-free mileage allowance:

• 45p per mile for the first 10,000 business miles driven annually.
• 25p per mile for any additional business miles.

The Future is Electric: More Incentives on the Horizon?

From a tax perspective, now is still a favourable time to invest in electric vehicles. With the ban on the sale of new petrol and diesel cars looming in 2030, we anticipate further incentives to encourage the transition.

Navigating VAT on Electric Vehicles

Understanding the VAT rules is crucial:

• Purchasing: Generally, electric vehicles are treated like any other car, and VAT is not recoverable on the purchase price unless the vehicle is exclusively used for 100% business purposes.
• Leasing: When leasing an electric vehicle, 50% of the VAT paid on the leasing charge can be recovered.

VAT and Charging: What Businesses Need to Know

• Charging at Home (Sole Traders & Partnerships): If you’re a sole trader or in a partnership and charge your electric vehicle at home for business use, you can recover the VAT component on the electricity costs. You’ll need to keep detailed mileage records to differentiate between business and private use.
• Charging at Work (Employees): If an employee charges their electric vehicle at a public charging point at the business location, the electricity supply is made to the company. This means the employer can recover the VAT on the charging costs, subject to normal VAT rules and the need for detailed mileage records to allocate costs to business versus private use.

Ready to Explore Your Electric Vehicle Options?

GoCompare have built an interactive cost of charging calculator tool at https://www.gocompare.com/motoring/electric-cars/cost-to-charge/ to help users understand the real costs and benefits when choosing their electric vehicle.

As you can see, there are several factors to consider when weighing up the tax implications of switching to electric vehicles. If you’d like to discuss your specific circumstances and explore the best options for your business, please don’t hesitate to get in touch. We’re here to help you make the right decision for a greener and more tax-efficient future.

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