In recent years, the UK Government has introduced various incentives to promote the adoption of ultra-low emissions vehicles (ULEVs). Despite recent changes, tax benefits and incentives remain available to assist UK businesses in transitioning to electric cars and vans.
Following the Spring Statement, we have updated the details on available tax benefits and incentives for UK businesses and individuals switching to electric vehicles. This includes upcoming changes related to Vehicle Excise Duty (VED) and the Expensive Car Supplement. Many of these details were confirmed in the Autumn Budget 2024.
Cars
Benefit-in-Kind (BiK) Rates (Company Car Tax)
For all company cars registered on or after 6th April 2020, a low company car tax rate continues to apply. While the rate has previously been 2%, from the 2025/2026 tax year, zero-emission company cars used for personal journeys will incur a 3% BiK rate, an increase of 1% from 2024/2025. This rate will rise by 1% each year until 2028, then by 2% annually until 2030.
| CO2 Emissions (g/km) |
Appropriate Percentage | |||||
|---|---|---|---|---|---|---|
| Tax Year | ||||||
| 2022-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 | 2029-30 | |
| 0 | 2% | 3% | 4% | 5% | 7% | 9% |
Example
Volkswagen ID.4 210kW Match Pro 77kWh 5dr Auto | Electric
P11D Value = £44,305
Co2 Emissions = 0g/km
BIK Rates:
| 2024/2025 | 2025/2026 | |
| BIK % | 2% | 3% |
| Taxable Benefit | £886.10 | £1,329.15 |
| 20% Tax Payer |
||
| Annual | £177.24 | £265.83 |
| Monthly | £14.77 | £22.15 |
| 40% Tax Payer |
||
| Annual | £354.44 | £531.66 |
| Monthly | £29.54 | £44.31 |
The Autumn Budget 2024, also confirmed Benefit-in-Kind Rates for cars emitting CO2:
- For cars emitting 1-50g CO2 per kilometer, including hybrids, rates will rise to 18% in 2028-29 and 19% in 2029-30.
- For all other vehicle bands, rates will increase by 1 percentage point annually in 2028-29 and 2029-30, with the maximum AP also rising by 1 percentage point each year to 38% for 2028-2029 and 39% for 2029-2030.
For a complete breakdown of BiK rates by year, refer to our BiK rate table.
For more examples of these rate changes, and how this will impact you or your employees by click here.
Lease Rental Restriction (Corporation Tax Relief)
For leased company cars, the finance element of lease payments can be offset against company profits, reducing corporation tax liability. Electric cars continue to offer greater corporation tax relief, with the 100% lease rental offset threshold reduced to 50g/km CO₂ from April 2021. Cars emitting over 50g/km can only offset 85% of the lease rental.
Example for a Tesla Model 3 RWD with an effective monthly rental of £721.80
| Year | Yr 1 (FY25) | Yr 2 (FY26) | Yr 3 (FY27) | Cumulative Tax Relief |
|---|---|---|---|---|
| Lease Rentals for tax relief | £8,662 | £8,662 | £8,662 | |
| Corporation tax rate | 25% | 25% | 25% | |
| Tax relief | £2,165 | £2,165 | £2,165 | £6,496 |
If the timing of the lease rentals is not spread evenly (for instance, there is a large upfront payment) then the tax relief will be spread evenly throughout the lease period rather than over the period when the cost of the lease rentals is incurred.
100% First Year Writedown Allowance (Corporation Tax Relief)
When a company purchases a fixed asset, such as tools, machinery or a car, it is not usually possible to deduct the entire expenditure on the asset from the profits straightaway on the basis that it represents capital expenditure. Instead, tax relief is calculated for qualifying capital expenditure by way of capital allowances, which effectively spreads the amount of tax relief that can be claimed over a number of years; as opposed to the depreciation for accounting purposes, which is generally not deductible for tax purposes.
With company cars, there are special rules dictating the amount of capital allowance that can be offset against profits each tax year depending on the CO2 emissions (g/km) of the vehicle. As electric cars emit no CO2 emissions the full capital expenditure, even if purchased via Contract Purchase, Lease Purchase or Hire Purchase, can be declared in the first year.
This 100% allowance is extended until 31 March 2026 for corporation tax and 5 April 2026 for income tax.
| Pool | CO2 Emissions | Writedown Allowance Rate |
|---|---|---|
| First-Year Rate | 0 g/km | 100% |
| Main Rate | 1 - 50 g/km | 18% |
| Special Rate | Above 50 g/km | 6% |
Example for a Tesla Model 3 RWD based on disposing of the vehicle after 3 years and 45,000 miles
| Year | Yr 1 (FY24) Purchase |
Yr 2 (FY25) | Yr 3 (FY26) | Yr 4 (FY27) Disposal |
Yr 5 (FY27) |
|---|---|---|---|---|---|
| Purchase price | £39,990 | ||||
| Sale proceeds | -£19,240 | ||||
| Tax Writedown Value | £39,990 | £0 | £0 | -£19,240 | -£15,777 |
| WDA rate | 100% | 0% | 0% | 18% | 18% |
| Capital allowances | £39,990 | £0 | £0 | -£3,463 | -£2,840 |
| Corporation tax rate | 25% | 25% | 25% | 25% | 25% |
| Tax relief | £9,998 | £0 | £0 | -£866 | -£710 |
| Cumulative tax relief | £9,998 | £9,998 | £9,998 | £9,132 | £8,422 |
| Cumulative tax relief accrued after 10 years* | £6,171 | ||||
| Cumulative tax relief accrued after 45 years* | £5,189 | ||||
*Assumes current corporation tax rate of 25% remains unchanged.
Value-Added Tax (VAT)
There is no special treatment for electric cars and vans in regards to VAT, they follow the same rules as internal combustion engine vehicles. Typically no VAT is reclaimable when purchasing (including via Contract Purchase, Lease Purchase or Hire Purchase) cars, however, qualifying commercial vehicles can reclaimable 100% of the VAT based on the fact they are used solely for business reasons.
In regards to leasing cars, HMRC views the use of company cars that are leased as 50% personal and 50% business, and therefore half of the VAT on the vehicle rental can be reclaimed. If a fixed priced maintenance package is included then 100% of the VAT on this product can be reclaimed.
As electric cars and hybrids that emit less than 50g/km of CO2 emissions can offset 100% of the vehicle rental against corporation tax under the Lease Rental Restriction, there is a further benefit due to the higher amount including the non-reclaimable VAT.
Vehicle Excise Duty
Vehicle Excise Duty (VED), also known as Road Tax, is determined by the CO2 emissions (g/km) of the vehicle. Electric vehicles (EVs), which produce no emissions, are currently exempt from the first-year rate, standard rate, and premium rate.
First Year Rates
In the Autumn Budget the UK Government confirmed the VED First Year Rates for new cars registered on or after 1 April 2025:
- Zero-emission cars will incur the lowest first-year rate at £10 until 2029-30.
- Rates for cars emitting 1-50g/km of CO₂, including hybrids, will increase to £110 for 2025-26.
- Rates for cars emitting 51-75g/km of CO₂, including hybrids, will increase to £130 for 2025-26.
- All other rates for cars emitting 76g/km of CO₂ and above will double from their current level for 2025-26
These changes will take effect from 1 April 2025. If your new Zero Emission car is registered by 31st March 2025, the first year VED is £0.
VED Rates from 1 April 2025:
| CO2 | 01 April 2024 | 01 April 2025 | Increase |
| 0 | £0 | £10 | £10 |
| 1-50 | £10 | £110 | £100 |
| 51-75 | £30 | £130 | £100 |
| 76-90 | £135 | £270 | £135 |
| 91-100 | £175 | £350 | £175 |
| 101-110 | £195 | £390 | £195 |
| 111-130 | £220 | £440 | £220 |
| 131-150 | £270 | £540 | £270 |
| 151-170 | £680 | £1,360 | £680 |
| 171-190 | £1,095 | £2,190 | £1,095 |
| 191-225 | £1,650 | £3,300 | £1,650 |
| 226-255 | £2,340 | £4,680 | £2,340 |
| 255+ | £2,745 | £5,490 | £2,745 |
Second Year Rates
Expensive Car Supplement
Under the Expensive Car Supplement, any car that costs more than £40,000 when purchased new incurs an additional annual fee of £410 for five years, starting from the first Vehicle Excise Duty (VED) payment.
The £40,000 threshold is based on the manufacturer's official list price including optional extras, rather than the actual price paid by the buyer, which may factor in manufacturer discounts or promotions.
It’s important to note that the Expensive Car Supplement does not apply to new electric vehicles (EVs) registered before 1 April 2025. However, from 1 April 2025, any new EVs priced over £40,000 will be subject to this tax.
From 1 April 2025, the expensive car supplement will rise to £425 a year.
The Expensive Car Supplement effects used cars, if they originally had a list price of over £40,000 this tax continues until the vehicle reaches it's sixth year of registration.
Vans
The Plug in Vehicle Grant
The Government's Plug-in Vehicle Grant (PiVG) has been extended until 31st March 2026.
Providing a discount of 35% of the purchase price of a van, up to a maximum of £2,500 for small vans and £5,000 for large vans. Eligible vans are vehicles that have CO2 emissions of less than 50g/km and can travel at least 96km (60 miles) without any emissions at all. Small vans are defined as having a Gross Vehicle Weight (GVW) of less than 2,500 kilograms (kg), whereas large vans as defined as those between 2,500kg and 3,500kg.
100% First Year Writedown Allowance (Corporation Tax Relief)
Until April 2025, a business that purchases a van with zero CO₂ emissions is eligible for a 100% First-Year Allowance (FYA) provided the business does not claim the government’s Plug-In Van Grant (PIVG).
Any other van should be treated as plant and machinery and allocated to the main pool, where it will be eligible for writing down allowances at 18% unless an Annual Investment Allowance is claimed.
Van Benefit Charge
Unlike company cars taxed based on value and CO₂ emissions, if a van is used for both business and personal purposes, the employee's tax is determined by the Van Benefit Charge. Since 6th April 2021, there has been a zero van benefit charge for electric vans.
From April 2025, the van benefit charge for vans the produce emissions will increase from £3,960 (2024/25) to £4,020 (2025/2026). This increase only applies to vans that are capable of emitting CO₂ emissions. For fully electric vans, this increase does not apply.
Vehicle Excise Duty
Vehicle Excise Duty (VED), also known as Road Tax, is determined by the CO2 emissions (g/km) of the vehicle. From 1 April 2025, Electric Vans will move to the standard annual rate for light goods vehicles £345.
Double Cab Pick-Ups
The Autumn Budget confirmed that the Government will classify double cab pick-up vehicles (DCPUs) with a payload of one tonne or more as cars for specific tax purposes.
From 1 April 2025 for Corporation Tax and 6 April 2025 for income tax, DCPUs will be treated as cars concerning capital allowances, benefits in kind, and certain deductions from business profits. Existing capital allowances will apply for those who purchase DCPUs before April 2025.
From April 2025, as Double Cab Pick-Ups will be classified as cars, they will be subject to Vehicle Excise Duty and the Expensive Car Supplement. Employees who use the DCPU for are used for personal journeys, will incur Company Car Tax, otherwise known as Benefit-in-Kind.
Fuel Benefit Charge
While various methods exist for businesses to reimburse employees for fuel, the fuel benefit charges for vans are set to increase from April 2025, in line with the Consumer Price Index:
2024/2025 = £757
2025/2026 = £769
HMRC does not classify electricity as a fuel, meaning charging electric cars and vans does not incur any benefit-in-kind (BiK) payments.
Advisory Fuel Rates
These rates only apply to employees using a company car.
From the 1st March 2025 the advisory fuel rates for are EVs is 7 pence per mile.
Details of rates for petrol and diesel vehicles can be found by clicking here.
Rates will be reviewed by HMRC for the 1st June 2025.
Mileage Rates for cars and vans
First 10,000 business miles in the tax year = 45p per mile
Each business mile over 10,000 in the tax year = 25p per mile
Salary Sacrifice
Although the increased BiK tax rates from 2028 to 2030 will reduce the savings available to employees the increased rate of employer's NIC offers higher savings for employers from April 2025.
Employer National Insurance
The rate of Employer NICs will increase by 1.2 percentage points to 15%. The per-employee threshold for employer National Insurance will be reduced from £9,100 per year to £5,000 per year. These changes will take effect from 6 April 2025.
If your company participates in our EV Salary Sacrifice Scheme and decides to share National Insurance savings with employees, you are likely to see an increase in Salary Sacrifice Savings.
National Living Wage (NLW)
It is important to be aware that to be eligible to take part in a Salary Sacrifice scheme, the overall amount salary sacrificed can not take an individual below National Living Wage.
The National Living Wage (NLW) will increase by 6.7% to £12.21 per hour from April 2025, resulting in an additional £1,400 in annual earnings for a full-time worker earning the NLW.
Charging Grants
In recent years the Government have been supporting both individuals and businesses to transition to EVs, is through Charging Schemes / Grants. Below we have compiled a list of chargepoint grants, using the UK Government's Grant Service.
The below grants have been extended and are now due to close on the 31st March 2026, at 11.59pm.
- Workplace Charging Scheme
- Workplace Charging Scheme for state-funded education institutions
- Electric vehicle infrastructure grant for staff and fleets
- Electric vehicle chargepoint grant for renters and flat owners
- Electric Vehicle Chargepoint Grant for Households with On-Street Parking
- Electric vehicle chargepoint and infrastructure grants for landlords
Find more about these charging grants, by clicking here.
The rates and allowances mentioned are based on the 2024 Autumn Budget and 2025 Spring Statementfrom HM Treasury and are for information purposes only. Lease Electric recommends consulting your Financial Advisor or Accountant and seeking professional advice and guidance before making any decisions
Useful links
New driving licence rules for electric vans
HMRC Guidance - Vehicle tax for electric, zero or low emission vehicles
HMRC Guidance - Increase to van benefit charge and fuel benefit charges