Electric Car Incentives
Financial Benefits For Electric Cars
Many Electric Cars have zero or low emissions and may be eligible for financial incentives that encourage clean energy use in the UK.
Benefits for All Electric Drivers:
• £3,500 plug-in grant
• Exempt from London Congestion Charge
• Access to clean air zones, including the London Ultra Low Emission Zone
• Up to £35,000 interest-free loan (Scotland only)
Benefits of Electric Cars for Business:
• 100% First Year Allowance
• No car fuel benefit charge
• Reduced National Insurance contributions
• Reduced benefit-in-kind tax
• Eligible for salary sacrifice schemes
The plug-in grant is a purchase subsidy of up to £3,500 which is deducted from the purchase price of new Electric vehicles.
To benefit from the EV incentive scheme, we need to share your name and contact details and the VIN of your car with the Department for Transport. Please see the privacy notice of the Department for Transport.
More information: Plug-in Grant & Go Ultra Low
London Congestion Charge
Following an initial £10 registration fee, Electric vehicles are exempt from the daily London Congestion Charge of £11.50. The cost of commuting into London by car for 3 years could be up to £8,970, when driving into the zone on a daily basis. From October 2021, the C-Charge exemption will be removed from plug-in hybrids and only be available to fully electric vehicles.
More information: TFL Discounts and Exemptions
Ultra Low Emission Zones
Electric vehicles are able to access the London Ultra Low Emission Zone, without paying the noncompliance fee of £12.50. The current Central London ULEZ is due to expand significantly from Central London to cover a much larger zone in October 2021. The cost of paying the ULEZ over 3 years could be up to £13,650, when driving into the zone on a daily basis..
More information: Ultra Low Emission Zones
Electric Vehicle Loan in Scotland
In Scotland, Transport Scotland funds an interest-free Electric Vehicle Loan of up to £35,000 for purchases of a new plug-in electric vehicle for personal use and up to £120,000 for purchases of new plug-in electric vehicles for business use.
More information: Electric Vehicle Loan & Low Carbon Transport Business Loan
100% First Year Allowance (FYA)
First Year Allowance is claimable for up to 100% of the cost of qualifying low emission and electric cars. By choosing an Electric car, your business can claim a 100% year one deduction for the cost of the vehicle.
The First Year Allowance is applicable to new vehicles and cars considered new despite previously being used, such as vehicles registered as a sales or service demonstrator by the manufacturer.
In the 2016 UK Budget, the Government announced that 100% FYA for businesses purchasing low emission cars will be extended until April 2021.
More information: HMRC Capital Allowance Manual
Car Fuel Benefit Charge
As electricity is not classed as a road fuel, Electric cars have no fuel benefit charge. That means employees are exempt from paying benefit-in-kind on electricity provided by their employer to charge an electric company car.
More information: Tax benefits for ultra low emission vehicles
Advisory Fuel Rates
As electricity is not classed as a road fuel, the car fuel benefit charge does not apply to electric charging. If an employee uses a company car, no benefit-in-kind occurs when charging their vehicle at the workplace.
The advisory fuel rate for fully electric vehicles has been confirmed by HMRC as 4 pence per mile.
More information: AFR/AMAPs/MAR and Fuel Benefit
Class 1A National Insurance Contributions
Class 1A NICs based on the vehicle's P11D value and relevant BIK rate are applicable as determined by the official carbon emissions and fuel type.
More information: An employer’s guide to Class 1A National Insurance contributions
All Electric cars have a benefit-in-kind (BIK) tax of 16 percent, which is the lowest available rate in the UK.
In the 2020/21 tax year, both new and existing Tesla cars will be eligible for a 0 percent BIK rate. The BIK rate will rise to 1 percent in 2021/22 and to 2 percent in 2022/23.
The average petrol or diesel vehicle has a BIK rate of 20 to 37 percent.
Salary Sacrifice enables employees to sacrifice some of their gross salary in order to receive the benefit of driving a fully electric company car. As the sacrifice is executed before tax and National Insurance contributions are applied, employees effectively save costs in the acquisition of their new car in a similar way that other savings such as childcare, gym membership or cycle-to-work schemes operate.
From a company’s perspective, this scheme provides an opportunity for organisations to offer employees a new car at a lower cost than they could achieve in the retail market in a tax efficient way. The company may also benefit from reduced National Insurance contribution payments from the scheme.
Salary Sacrifice is either offered by the employer or the leasing provider.