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FUNDAMENTALS OF \ EV TAXATION
More than 80% of new plug-in hybrid and electric vehicles are registered to fleets, supported by a generous package of incentives. Here’s how it works.
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LEASE AND PURCHASE INCENTIVES
Although the Plug-in Car Grant ended in 2022 (excluding a handful of wheelchair-adapted vehicles), there are still incentives for businesses to electrify their fleet.
Businesses leasing or renting vehicles for 45 days or more can offset 100% of the monthly payments against pre-tax profits, as long as they emit 50g/km CO2 or less. That rate is reduced to 85% for vehicles emitting 51g/km or more.
Battery-electric vehicles are also eligible for a 100% First-Year Allowance, enabling businesses to write off the entire purchase cost against their pre-tax profits. This falls to 18% for models with 1-49g/km CO2 emissions (most plug-in hybrids) and 6% for anything over that threshold.
SALARY SACRIFICE
Low company car tax rates have also reignited demand for salary sacrifice schemes. These enable drivers to lease a car through their employer, often with a fleet discount, and pay for the monthly rentals from their pre-tax salary. As long as that vehicle emits no more than 75g/km CO2, BiK and NICs are based on its taxable value instead of the much pricier monthly rental cost.
It’s made salary sacrifice one of the most affordable ways to drive an electric car, while reducing employers’ tax bills. BVRLA members’ combined salary sacrifice fleet tripled in size in the three years to July 2024, and most deliveries are electric.
VEHICLE EXCISE DUTY
The Vehicle Excise Duty (VED) system was overhauled in April 2017, introducing a CO2-weighted First Year Rate for new cars, with a flat Standard Rate for subsequent renewals. Electric and hydrogen fuel cell vehicles (both rated at 0g/km CO2) qualify for a zero rate, and there is a £10 discount for hybrids. Rates increase annually, in line with inflation.
Discounts will end 1 April 2025, putting all cars onto the same Standard Rate, even if they are already on the road. New EVs priced at £40,000 or more will also attract the ‘expensive car supplement’ – an additional charge (currently £410) on top of the first five annual renewals. Rates are shown in the following table.
Hybrid rates are shown in brackets
COMPANY CAR TAX
The Treasury reintroduced ultra-low company car tax bands for vehicles emitting less than 50g/km in 2020, and they are confirmed until at least April 2028. Driver Benefit-in-Kind (BiK) and employer National Insurance Contributions (NICs) are based on the vehicle’s taxable value, which is a percentage of its list price (P11d) weighted according to its CO2 emissions and (for plug-in hybrids up to 50g/km) electric range.
FOR EXAMPLE... comparing the Volkswagen ID.3 Pro Match EV (0g/km CO2) with the Golf 1.5 eTSI petrol (121g/km CO2), the taxable value would be calculated as follows:
ID.3 (EV) > £36,505 (P11d) x 0.02 (BiK 2023/24) = £730 (taxable value)
Golf (Petrol) > £29,675 (P11d) x 0.29 (BiK 2023/24) = £8,606 (taxable value)
BiK for drivers is calculated based on their income tax rate (typically 20% or 40%), while businesses pay Class 1A National Insurance Contributions (NICs) at 13.8%.
Continuing the examples above:
Annual Benefit-in-Kind: 20% taxpayer
ID.3 (EV) > £730 (taxable value) x 0.20 (tax rate) = £146 (£12 per month)
Golf (Petrol) > £8,606 (taxable value) x 0.20 (tax rate) = £1,721 (£143 per month)
Annual Benefit-in-Kind: 40% taxpayer
ID.3 (EV) > £730 (taxable value) x 0.40 (tax rate) = £292 (£24 per month)
Golf (Petrol) > £8,606 (taxable value) x 0.40 (tax rate) = £3,442 (£287 per month)
Annual Class 1A NICs:
ID.3 > £730 (taxable value) x 0.138 (NIC rate) = £101
Golf (Petrol) > £8,606 (taxable value) x 0.138 (NIC rate) = £1,188
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Salary sacrifice allows more employees to drive an Electric Vehicle (EV) than ever before, making it more accessible than traditional company car schemes. As EVs become ever more popular but their P11D values remain higher than petrol cars, salary sacrifice provides an affordable option to drive the latest electric car technology. There’s no need for a deposit, and costs for servicing, maintenance, breakdown cover and insurance are all included. With EVs benefiting from the lowest Benefit-in-Kind rates, employees not only make fuel savings but also save money as the fixed monthly amount is taken from gross salary, so they pay less income tax and National Insurance.
Tusker are the market leaders in salary sacrifice. With over 16 years of experience, around 2,000 live customer schemes, and more than 48,000 cars on UK roads, Tusker are the experts in delivering salary sacrifice car schemes that work for UK organisations.
Kit Wisdom Managing director, Tusker P: 0333 400 7431
