Do you own an electric vehicle or are planning to buy one? If the answer is yes, then, you should also know tax benefits and incentives of owning an electric vehicle in the UK. In this article, our experts will help you understand tax consequences, incentives and other benefits associated with electric vehicles in the context of provision of electric vehicles and charging to employees. So, stay with us till the end.


As per a recent survey, electric vehicles will account for a total of 20% of total vehicle sales by the year 2026. At present, the ratio of sales of electric vehicles to petro-diesel cars stands at merely 10%. Owing to various incentives introduced by the UK government, companies across the country have spent a mammoth £8.2 billion on acquisitions of electric vehicles; likewise, businesses are planning to spend another £12 billion on the same in the upcoming 2 years.

Now, let’s move back to the main topic to have a peep into different types of incentives given by the UK government vis-a-vis provision of electric vehicles and electric charging to the employees.

Electric Vehicles: Grants

In a bid to encourage shift from petro-diesel vehicles to electric vehicles, the United Kingdom government offers grants. The limit of the grants on different types of vehicles is as follow:

  • Up to £2,500 on cars
  • Up to £6,000 on large vans
  • Up to £7,500 on taxis
  • And, up to £16,000 on trucks

It is mandatory for the dealers to reflect the value of grants against different types of vehicles in their price lists.

Electric Vehicles: Excise Duty

The UK government imposes vehicle levies vehicle excise duty on every vehicle that uses public roads in the country. Mainly, the 1st year vehicle excise duty is charged on nitrogen oxide and carbon dioxide emissions and ranges from zero to £2,245 (you can see the full list here).

As the government has incentivised electric vehicles, therefore, the initial or first year vehicle excise duty on pure electric vehicles is absolutely zero – yes, you read it right, you don’t have to pay any excise duty in the first year on acquisition of pure electric vehicles.

Pure electric vehicles are those vehicles that produce zero carbon dioxide or nitrogen oxide while being driven.

Electric Vehicles: Corporation Taxes and Capital Allowances

How much capital allowance you will receive on acquisition of the new car is determined by the amount of carbon dioxide emissions and the date of purchase. Since April 2021, the government has introduced 100% first year capital allowance on purchase of unused, new electric cars provided that they emit zero CO2.

Likewise, the company is eligible for 100% 1st year allowance on expenditures that incur on establishing electric vehicle charging points.

Depending on the specific circumstances vis-a-vis establishing electric charging points, they will either fall in the “general pool plant & machinery” or “special rate plant and machinery”. If you need any further help, you can reach out to our tax experts for 15-Minute Free Consultation.

Value Added Tax & Electric Vehicles

Be it electric cars or non-electric cars, the same general rule of charging 20% Value Added Tax (VAT) is applied. However, there are certain exemptions available. For instance, depending on your business partial status, the amount paid on commercial vehicles can be fully reclaimed provided that these vehicles are not used for private purposes in any situations. Likewise, you can also recover half of the VAT paid on leased cars.

The cost incurred on establishing a charging point is an exception. Businesses can reclaim VAT paid on establishing charging points and related infrastructure. In cases where charging points are established at employees’ homes by the businesses, then, businesses can’t recover VAT.

Ongoing Usage – Fuel Duties & VAT on Fuel

The government has frozen the headline rate of fuel duty on bioethanol, biodiesel, diesel, and standard petrol at 57.95p per litre since 2011-12. Fortunately, the government does not charge any fuel duty on electricity used to charge electric vehicles (at businesses locations); however, normal climate change levy rules are charged at the rate of 0.775p per kWh. .

But the individuals receiving electricity at domestic premises are exempted from the climate change levy.

Ongoing Usage – Insurance Premium Tax

Be it non-electric cars or electric cars, all will be charged a premium of either 12% or 20% (in some circumstances).

Ongoing Usage – Vehicle Excise Duty

Just like the first year, no excise duty is charged on pure electric vehicles provided that they emit zero nitrogen oxide or carbon dioxide.

Ongoing Usage – Value Added Tax

As far as businesses are concerned, they can reclaim Value Added Tax (VAT) against all business-related costs and runnings such as off-street parking or repairs. Back then in May 2021, HM Revenue & Customs confirmed its VAT policy on supply of electricity for charging electric vehicles. The main points of this policy are as follow:

  • For public charge points, businesses are charged VAT at a standard rate and there are no exemptions available.
  • HMRC permits sole proprietors to recover input VAT on that proportion of home-based charging that was solely for business purposes.
  • Businesses, unlike sole proprietors, are not allowed to recover VAT charges incurred on charging employee’s electric vehicles in home spaces (even if the employee is doing this for the sole purpose of business use).
  • However, businesses are allowed to recover the whole amount of input of VAT charged in the provision of electricity for charging employee’s electric vehicles at workstations.

Need further help, reach out to our experts for a 15-Minute free call.

Electric Cars & Salary Sacrifice Agreement

In case you don’t have any prior knowledge, a salary sacrifice arrangement is an agreement in which an employee sacrifices a certain sum of cash payment against non-cash benefits. While recent legislation has significantly reduced tax-efficient salary sacrifice arrangements in the past few years, any salary sacrifice arrangement that involves provision of electric or hybrid vehicles to the employee still enjoys tax-efficient provisions.

As far as HMRC is concerned, it has halted advance approval of salary sacrifice schemes.

15-Minute Free Consultation With Our Top-Notch Experts

If managed properly, these little exemptions can save you a significant amount in terms of tax payments. Here at IBISS & CO, our highly-regarded tax advisors keep themselves abreast of all things happening in the tax matters. Therefore, there’s no better place to seek help than IBISS & CO.

For an absolutely 15-Minute Free Consultation with our top-notch tax advisors click here. We have saved our clients hundreds of thousands of pounds legally in terms of tax payments. We can do the same for you.

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