What Tax Benefits are There To Driving An Electric Car?

‘Benefit in Kind’

One of the biggest tax breaks of electric vehicles is their significantly lower Benefit in Kind (BIK) rate compared to petrol or diesel cars.

As with other perks, like gym membership or healthcare, company cars used for both business and personal travel are subject to BIK tax. The amount you pay depends on the vehicle’s CO2 emissions and list price (not the purchase price). For traditional petrol or diesel vehicles, the BIK rate can be as much as 37%.

In stark contrast, the Benefit in Kind rate for company car tax on EVs is 3%, up from 2% in April 2025. While the rate is due to increase annually until at least 2029/30, it remains much lower than BIK rates for internal combustion engine (ICE) and hybrid cars, offering substantial savings for businesses and employees.

'Fuel' Costs

Electricity isn’t classed as ‘fuel’ by HMRC, and several deductions and reliefs are available for EVs. That means any reimbursement from your employer for charging a company car will be tax-free in line with HM Revenue and Customs (HMRC) guidelines. This tax-free reimbursement is only available for business mileage, not private use or commuting to work.

However, individuals also benefit from EVs through cheaper running costs compared to petrol or diesel models. And, with an expanding choice of makes and models, along with EV tax benefits, electric cars remain a more economical long-term option.

There are several tax deductions and reliefs available for EV “fuel” (electricity), but understanding exactly what applies to your situation can be complex and HMRC guidance isn’t always straightforward.

Taxes on EV Charging

The cost of charging an EV and providing charging facilities can qualify for taxable benefit exemptions. Whether an employer is exempt from BIK tax for offering EV charging depends on:

Location: The charge point must be installed at or near the workplace and available to all employees. This includes charging personal vehicles.

Company car: The charge point is installed at the employee’s home address and paid for by the company, provided it’s used to charge a company vehicle.

Benefit: The employer pays for the cost of charging a company vehicle for the employee.

VAT

Although electric vehicles aren’t exempt from VAT (value Added Tax), businesses can still reclaim 50% of the VAT if the EV is for business use only.

Companies can also claim back VAT on charging costs, provided the vehicle is use solely for business purposes.

Capital Allowance

In the first year of purchasing an electric vehicle, businesses can claim 100% capital allowances for the cost of an EV against pre-tax profits. The EV must be new and unused, and there’s no cap on its value.

This makes EVs an attractive option for company cars, particularly since tax relief on hybrid vehicles was withdrawn in 2021.

Grants for Electric Vehicles

On top of various tax benefits, you’ll find a range of grants available. A £650 million Electric Car Grant (ECG) was recently announced by the UK Government to boost the transition to EVs. This offers significant savings on some zero-emission electric cars that qualify for the scheme.

The government also offer an EV Chargepoint Grant (EVCPG), giving up to £350 or 75% (the lowest) off the cost of buying and installing a home charge point.