Tax on Electric Cars in the UK, Savings Tracker
Finance

Tax on Electric Cars in the UK

There are many benefits to owning an EV, from the sustainability credentials to the exhilarating drive. In addition to the Tony Stark factors, EV’s are remarkably economical to run; post initial outlay, driving electric can be drastically cheaper than running a traditional ICE vehicle. Tax on electric cars in the UK is just one area in which owners are reaping savings.

This article will look at the different tax costs (and savings) associated with electric cars.

VED

Perhaps the most important, given it applies to everyone and occurs every year. Vehicle Excise Duty (VED), commonly referred to as road tax.

VED is calculated slightly differently, depending on when the vehicle was registered. For those registered after March 2001, road tax is calculated based on CO2 tailpipe emissions. For cars registered before March 2001, road tax is calculated based on engine size.

In addition to emissions and registration, the price of the vehicle can determine how much overall tax you pay. So, for example, car’s costing £40,000+ are liable to pay an annual premium supplement for five years (beginning the second year of tax).

While the premium rate applied to all vehicles when first initiated, tax changes in April 2020 saw zero-emission vehicles exempt from this additional charge. Great news for BEV (battery electric vehicle) drivers! However, the premium still applies to PHEV’s (plug-in hybrid), although lower tailpipe emissions provide a modest saving.

Road Tax Summed Up:

  • BEVs (zero-emission vehicles) are exempt from all VED charges.
  • PHEVs are still subject to VED, dependent on CO2 emissions in the first year and subject to a flat rate of £140 after that.
  • All vehicles (excluding BEVs) costing upward of £40,000 are subject to a premium supplement of £325 for five years, starting the second year of tax.

Please note, even if your vehicle is exempt from VED, you must still tax your car each year – which, as a BEV owner, can be rather enjoyable.

BiK

Benefit in Kind (BiK) is the official term for company car tax. The BiK rate is a form of tax based on the actual benefit offered to an employee through a company car (which can be used for personal use). HM Treasury determines the rate, and as a result, the government is leveraging low company car tax to drive EV adoption.

To calculate how much tax you’re subject to on a company car, you’ll first need to know the P11D value, its CO2 emissions, your income tax band and the current BiK rate.

P11D

The P11D value of a vehicle is based on its listing price, optional extras, VAT and delivery fees.

Calculation

The formula you need to calculate the amount of BiK tax you’ll be paying is below:

P11D value x BiK rate = BiK value

Let’s take WhatCar best company car of 2021 – the Tesla Model 3 – as our example car.

A new Model 3 has a P11D value of £49,935. As a BEV, it is classified as a zero-emission vehicle, placing it firmly in the 1% BiK tax bracket for 2021-2022.

£49,935 x 1% = £499.35

To calculate how much tax you’ll pay on your company car in one year, you simply multiple the BiK value by your income tax band.

Basic Rate: £499.35 x 20% = £99.87 annual / £8.33 per month
Higher Rate: £499.35 x 40% = £199.74 annual / £16.65 per month
Additional Rate: £499.35 x 45% = £224.71 annual / £18.73 per month

To calculate tax rates for 2022-2023, adjust the BiK rate to 2%.

A final note on BiK rates; Businesses account for around 50% of new vehicles making this a core target area for the government to push their sustainability agenda. As a result, it is far cheaper to operate an electric company car than an ICE. For comparison, a BMW 3 Series would cost £2407.32 for a 20% tax band – 24 times more than the Tesla example above.

Other Financial Benefits to Consider

Aside from tax relief, there are several additional economic savings to be had for driving an EV. We’ve listed a few below.

  • Capital Allowance: Business can claim back on the cost of an electric vehicle.
  • Plug-in Car and Van Grants: Subsidising the purchase cost for eligible vehicles by up to £2,500 for models costing under £35,000. A grant for 35% of the purchase price, up to £3,000, is available for small vans and £6,000 for larger models.
  • EVHS: Electric Vehicle Home Charge Scheme providing individual owners of EV’s a grant to install a charge point at home.
  • WCS: Workplace Charging Scheme provides grants to businesses seeking to install charge points for staff, visitors and customers.
  • London Congestion Charge Zone: Zero-emission vehicles are exempt from this charge, saving £15 a day for those who frequently travel into central London. (The exemption is expected to last until December 2025, after which all vehicles will be subject to the same charge).
  • ULEZ Charge: As a driver of a low/zero-emission vehicle, you’ll be exempt from the Ultra-Low Emission Zone charge, saving £12.50 every time you drive through the area.
  • Fuel Duty: This type of tax is applied to combustible fuels, not electricity. As a result, EV’s do not incur the extra charge for the electricity used to charge up, making the running costs of a plug-in vehicle much cheaper than an ICE model.
  • General Running Costs: Day-to-Day running of an EV can be remarkably cheaper than topping up with fossil fuels. One way in which you can increase those savings is to choose an EV friendly energy supplier.

Share Your Story

Have you saved a considerable amount by going electric? We’d love to hear from you. Leave a comment below telling us the most significant area of savings you’ve encountered so far on your EV journey.

 

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