As the popularity of electric cars is steadily rising - and with the government plan to ban the sale of new petrol and diesel cars from 2030, it is worth considering the financial benefits of these cars alongside the already known environmental benefits.
Cars registered between March 2001 and March 2017 with CO2 emissions less than 100g/km, are not subject to road tax. Fully electric cars registered after this are still exempt, however some plug-in hybrid electric cars, even with CO2 emissions less than 100 g/km, may need to pay up to £135 per year depending on the levels of CO2 emissions.
Currently cars that emit no more than 75g/km CO2 are exempt from having to pay the congestion charge in London. This is changing to only pure electric vehicles from October this year and this 100% discount is being discontinued from December 2025.
A company purchasing a brand new electric car (either all electric or with zero CO2 emissions) is able to claim a 100% First Year Capital Allowance on the cost.
If an electric car is provided to an employee, they will have to pay a benefit in kind tax charge, the rate of which depending on the car’s CO2 emissions. The rate for fully electric cars is 1% for 2021/22, and 2% subsequently. The rates for hybrid vehicles go up to 14%.
If you are considering purchasing a company car through your limited company, you would need to consider the fact that, although the running costs of the car can be put through the company - reducing the profit and consequently the Corporation Tax bill - you will have to consider this taxable benefit in kind. Therefore it may still be more beneficial to purchase the car personally, and claim the expenses by way of the approved mileage allowance payments (that don’t need to be reported to HMRC). The same rates apply to electric and non-electric vehicles for this: 45p for the first 10,000 business miles in a tax year; then 25p for each subsequent mile.
