Tax Incentives for Electric Cars and for Vans

Currently, employers are looking at salary sacrifice schemes which are a popular means of providing staff with an electric car.

A director or emplyeee will pay tax on the benefit of a car which is provided by their employer. The benefit is calculated as a % of the manufacturers list price for that car and model. The calculation of the benefit (known as the “BIK rate”) can be very attractive for a wholly electric car – the scales are as follows;

The BiK rate for zero emission vehicles will rise by 1%, reaching 5% by April 2028. But by contrast the table goes up to a punitive rate of 37% pa for a car of 155 Co2 emissions or more. Plug-in hybrids and traditional hybrids currently benefit from lower taxation based on electric-only mileage, but this favorable treatment is set to be phased out by 2028, after which hybrids will face a flat 18%. Clearly, if the employer is to provide a car it is far more attractive for the employee if they are provided with an electric car.

The employer will also benefit from capital allowances for the purchase price of the car.

If the Co2 emissions are 0 (basically the car is wholly electric), the company can claim full tax allowances in the year of purchase. If the emissions are more than 0 but are 50g/km or less the company claims 18% pa of the written down value / above 50 Co2 the company claims 6% pa. So with only 51 Co2 emissions or more the allowances for a company to buy are already very little – there may be a balancing allowance when the car is eventually sold but the calculation of this varies according to which other assets have been purchased. So for employers the preferred option would also be to provide an electric car.

In contrast, the director or employee who is provided with a petrol or diesel fueled car will potentially pay tax on benefits that far exceed the purchase price of the car. As well, the company will pay employers national insurance on the BiK. So instead of the business providing a fuel driven car there will usually be far less tax to pay if the owner draws an additional dividend or salary and buys the car personally.

Vans

In 2025 our tax legislation changed with regard to vans. Hitherto, a vehicle of more than one tonne laden weight qualified to be taxed as a van, and this could apply for example to a Land Rover Discovery. For tradesmen the whole cost of buying a van is deducted from taxable income in the year of purchase, and the vat included in the purchase price can be reclaimed (if the business is vat registered). Now however it is only vehicles that are contructed primarily for carrying goods or burden that can be so classified as being a van.