The adoption of electric vehicles (EVs) in the UK has grown significantly, driven by environmental concerns and financial incentives. Understanding the potential tax savings and benefits in kind (BIK) associated with EVs can provide substantial advantages for individuals and businesses.
This post outlines these benefits to help you make informed decisions.
Understanding the tax benefits of EVs
One of the main motivations for considering an EV is the range of tax benefits the UK government offers. These incentives aim to reduce carbon emissions and make EVs more financially attractive.
Vehicle excise duty (VED)
Electric vehicles are exempt from vehicle excise duty (VED), also known as road tax. Traditional petrol and diesel vehicles incur VED rates based on CO2 emissions, ranging from £0 to £2,000 in the first year. Choosing an EV prevents these charges, leading to significant savings over the vehicle’s lifetime.
Benefits in kind (BIK) for company car drivers
The BIK tax can be a significant financial consideration for employees and directors using company cars. EVs have a considerably lower BIK rate than internal combustion engine (ICE) vehicles, offering strong switching incentives.
Current BIK rates
For the 2023/24 tax year, the BIK rate for pure electric cars is just 2%. In contrast, petrol and diesel cars can attract BIK rates upwards of 25%. This difference can result in substantial tax savings for company-car drivers.
For example, a typical ICE vehicle with a list price of £30,000 and a BIK rate of 25% results in a taxable benefit of £7,500. An EV with the same list price and a BIK rate of 2% has a taxable benefit of only £600. This translates to significant savings in income tax for employees and national insurance contributions (NICs) for employers.
Home charging and the workplace charging scheme
Charging infrastructure is a critical consideration for EV adoption. The government offers incentives to support installing charging points at home and in the workplace.
Electric vehicle homecharge scheme (EVHS)
The electric vehicle homecharge scheme (EVHS) grants up to £350 for installing a home charging point. This grant can help offset the initial investment in home charging infrastructure, making it easier and more convenient to own and operate an EV.
Workplace charging scheme (WCS)
The workplace charging scheme (WCS) offers grants of up to £350 per charging socket, with a maximum of 40 sockets per business. This scheme supports businesses in providing charging facilities for their employees and promotes using EVs for commuting and business travel.
Corporate tax benefits for businesses
Investing in EVs can significantly benefit businesses in terms of tax advantages and enhanced corporate social responsibility.
Enhanced capital allowances
Electric vehicles qualify for enhanced capital allowances, which allow businesses to deduct the full cost of the vehicle from their profits before tax in the year of purchase. This provides immediate tax relief and improves cashflow.
Reduced Class 1A NICs
The lower BIK rate for EVs also means reduced Class 1A NICs for employers. This reduction can be particularly beneficial for businesses with large fleets of company cars.
Environmental and corporate social responsibility (CSR) benefits
Beyond financial incentives, adopting EVs aligns with broader corporate social responsibility goals. Businesses can enhance their reputation and appeal to environmentally conscious consumers and stakeholders by reducing carbon emissions and promoting sustainable practices.
Get help
The financial and environmental benefits of EVs are compelling. The incentives for individuals and businesses are substantial from significant tax savings to lower BIK rates.
At P B Syddall & Co., we are committed to helping our clients navigate these opportunities and maximise their financial benefits. Whether you’re considering an EV for personal use or looking to upgrade your company fleet, we are here to provide expert guidance and support.
Contact us today to learn more about taking advantage of electric vehicles’ potential tax savings and benefits.
Together, we can drive towards a more sustainable and financially sound future.