With the UK Government being committed to ending the sale of new petrol and diesel vehicles by the end of 2035 the current tax regime for cars is naturally favourable for zero and low emission vehicles. A summary of the main low emission vehicle tax benefits is provided below.
Benefits in Kind
Overall, the Benefit in Kind (BIK) rules for zero-emission cars are designed to encourage the adoption of low-emission vehicles and to support the government’s drive towards a cleaner, greener economy, reducing greenhouse gas emissions and air pollution.
The BIK tax rates for zero-emission cars are significantly lower than that of traditional petrol or diesel cars. For 2023/2024 and 2024/2025, the BIK rate for electric vehicles is 2%. After this, It is set to increase by 1% each year before reaching a maximum of 5% by 2027/2028.
This is a significant incentive for both employers and employees to consider zero-emission vehicles as a company car option, as they are not only environmentally friendly but also cost-effective. Furthermore, businesses can also benefit from a reduced National Insurance Contribution (NIC) for zero-emission company cars.
Capital Allowances
Capital allowances reduce the profits chargeable to tax and as expected the availability of these is favourable for zero and low emission cars. Broadly new and unused cars with zero CO2 emissions will attract a full 100% first year allowance; cars with CO2 emissions below 50g/km can claim 18% writing down allowance in the main pool; cars with higher CO2 emissions will be placed in the special rate pool (6% rate of capital allowances).
Vehicle Excise Duty
Zero-emission cars are currently exempt from paying Vehicle Excise Duty (commonly known as car tax or road tax). This exemption is available for fully electric cars with zero CO2 emissions, as well as hybrid cars with emissions below a certain threshold. However, from 1 April 2025 the exemption will be removed and all vehicles will need to pay Vehicle Excise Duty. The rate of ‘duty’ will depend on when the vehicle was first registered and its CO2 emissions.
Miscellaneous
Electric cars also qualify for other tax benefits such as exemption from the London Congestion Charge, and lower VAT rates for home charging units.
Provisions apply that ensure disabled employees who have to drive automatic cars are not penalised if the car has a higher list price than an equivalent manual vehicle.
Other incentives
The government has also introduced several schemes to help reduce the upfront and running costs of owning an electric vehicle. A plug in van grant of up to £2,500 for small vans and £5,000 of large vans until at least 2025 has been suggested together with £350 off the costs of installing homeplace charge points for people who live in flats.
It’s worth noting that these tax incentives may change over time so please do get in touch with us before committing to the purchase of a new vehicle so we can discuss with you the rules in place at that time. Email taxteam@robson-laidler.co.uk