Grants and tax benefits for business
Find out about the tax benefits and electric vehicle grants available for your business.
The government’s Office of Low Emission Vehicles (OLEV) has been set up to support the adoption of EVs in the UK and has developed a range of grants to help you with the switch to EVs.
At present, the upfront purchase costs of EVs are generally more expensive than their traditional counterparts, but as the price of batteries falls, it’s expected that the cost of an EV will become comparable or even cheaper than a conventional petrol or diesel car. In the long run, cheaper fuelling and maintenance costs will offset the purchase price and make it cheaper to own and operate an EV.
At present, the majority of EVs qualify for a government grant that will reduce the price by up to £3,000 for cars and £8,000 for vans, which means the cost of a new EV will fall broadly in-line with the price of an equivalent petrol or diesel model. As a buyer, you do not need to do anything to qualify for the grant as the dealer will deduct the value of the grant from the vehicle’s price when you buy it.
Find out more about the scheme and which vehicles qualify for plug-in grants.
The UK government has structured motor tax to reflect its commitment to EVs and to help meet its ambitious climate change targets. This includes incentives such as:
Benefit in kind/company car tax
At present, company car tax is based on an employee’s personal tax rate – eg 20%. But in 2020/2021 company car drivers will pay no benefit in kind tax for a pure electric vehicle, just 1% in 2021/22 and 2% in 2022/23. In addition, five new lower tax bands will be introduced for hybrid EVs and other vehicles with low emissions.
EVs purchased through a company salary sacrifice basis are exempt from the new tax rules which came into effect in 2017, which removed the tax benefits for traditional vehicles.
Vehicle Excise Duty (road tax)
Due to the zero- or low-level of CO2 emissions emitted by EVs, practically all models are categorised in Tax Band A which means they are effectively exempt from paying road tax.
As well as employees paying benefit in kind tax on their company vehicle, as a business you will pay employer’s national insurance contributions based on the car’s benefit in kind value. Since this tax is based on CO2 emissions, as described above, the cost is greatly reduced if your employees opt for an EV as their company vehicle.
You can claim capital allowances when you buy vehicles that are used in your business. This allows you to deduct the cost of cars you purchase from your profits before you pay tax. In addition to standard capital allowances available for company vehicle ownership, you can claim an enhanced capital allowance (ECA) for low emission cars used for business-related activities.
Car fuel benefit charge
Car fuel benefit charge is paid by employees who receive free fuel from their employer, a portion of which is used for private mileage in a company car and not repaid in full by the employee. Tax must be paid on the cash equivalent of the benefit in kind represented by that fuel. As current tax law does not treat electricity as a road fuel, the car fuel benefit charge does not apply to company cars charged in the workplace.
In addition to government tax incentives for EVs, it’s likely that the government’s anti-pollution drive will lead to more towns and cities across the UK imposing an air quality zone. This could lead to more tolls for conventional petrol and diesel vehicles, from which electric vehicles are likely to be exempt.