Tax Benefits for Electric and Hybrid Company Vehicles

The current method for calculating the taxable benefit of using an electric company car for private journeys is based on 2% of the vehicle’s list price. In the case of hybrid company cars, those capable of driving a minimum of 130 miles on electric power also have a taxable benefit of 2% of the list price. However, starting in April 2025, these benefit levels will gradually increase by one percentage point each year until they reach 5% of the list price in the 2027/28 financial year.

Despite this increase, electric or hybrid company cars remain cost-effective as the company is responsible for the capital cost, insurance, and any necessary repairs or servicing. In addition, electric cars are exempt from road tax (VED), but this will change from April 2025.

Using an electric van offers even more advantages, as there is currently no taxable benefit for the driver. However, it is still being determined whether this will continue to be the case from the 2023/24 financial year onwards.

When a business purchases a new electric car or van, it can claim 100% of the cost as a capital allowance in the year of purchase. To qualify for this 100% First Year Allowance, the electric car must be brand new (not second-hand) and acquired before April 1, 2025.

Companies that purchase brand new vans can claim a super-deduction of 130% of the price, provided the van is acquired before April 1, 2023 (though the 30% increment will be reduced if the accounting period overlaps with April 1, 2023). Additionally, if a business installs electric vehicle charging points before March 31, 2025, it can claim 100% of the cost in the year of purchase.

Employees allowed to charge their electric vehicles at work for free do not incur any taxable benefit for electricity usage. As of December 1, 2022, drivers of electric company cars who pay for their charging can claim a tax-free allowance from their employer of 8p per business mile driven.

For drivers using their electric cars for business purposes, the standard mileage rates are 45p per mile for the first 10,000 miles and 25p for any additional business miles driven during the tax year.

If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.