How much is electric company car tax: full guide

We explain the current and future UK company car tax rules for all-electric, plug-in, and standard hybrid vehicles

James Wilson
Oct 13, 2021

Company cars are still favoured by many firms and their employees - in fact, these ‘fleet’ cars make up around half of all new car sales in the UK. They’re also the reason why you’ve probably seen a lot more electric cars on the roads recently, as the government incentivises hybrid and electric cars. Company cars are taxed as Benefit-in-Kind (BiK) like any other work perk.

The amount of tax you pay for the privilege of a company car is calculated using three variables: your income tax band, the car’s list price when new, and a car’s carbon dioxide (CO2) emissions.

The weighting of these variables changes yearly as decided by the UK government, changing how much tax you pay. In 2020 company-car tax changed to favour electric vehicles (EVs) in particular, and for the 2020/21 financial year business users paid no tax on zero-emission cars.

It doesn’t matter if you charge your EV with electricity generated from renewable sources or not, in the eyes of the UK government miles driven using electrons and not petrol or diesels count as emission-free motoring. Which is why EVs can drastically cut your company car tax bill.

BiK bands range from 0-37%, with higher-polluting models often sitting in the top band - meaning you’ll pay a lot more tax if you want a powerful petrol or diesel car. But in 2021/22, electric cars are subject to just 1% in tax, and in 2022/23 this will only rise by another percentage point. This could save you hundreds, or in some cases thousands, of pounds in tax.

Plug-in hybrids (PHEVs) that emit less than 50g/km of carbon dioxide on the official emissions test also attract cheap tax rates. Depending on how far a hybrid can drive on electric power, it’s likely to sit in somewhere between 4 and 13%. If a PHEV suits your lifestyle better than a full EV, it’ll still mean you’ll pay about a third of what you’d pay for tax on a more polluting petrol model.

Hybrids that don’t need plugging in and don’t have an electric range as such will be taxed like any other petrol car, although as they tend to have lower CO2 emissions then the BiK rate tends to be lower. You may seen them referred to as 'self-charging' hybrids.

As an example, if you are a basic rate income tax payer i.e. 20 per cent, a brand new Volkswagen Golf GTI would cost you £2,483 for the 2021/22 tax year. Whereas a Volkswagen Golf GTE (the plug-in hybrid equivalent to the GTI) will set you back under £600. Add to that the fact you can hope to achieve more than 20 miles of pure electric driving with the GTE, and you can see that those with a modest commute can make huge savings on fuel as well as reduced company car tax. The Volkswagen ID.3, meanwhile, is VW’s Golf-sized electric car, and the cheapest version will cost less than £60 a year for 2021/22.

As company car regulations currently change yearly, we have broken down what this means for drivers by tax years. Starting with the current tax year and ending with the 2022/23 year below will help guide you to the best electric company car.

Electric company car tax for 2021/22

Below is a table that breaks down the company car tax bands (defined by CO2 emissions) that electric cars will be in. In total there are 29 bands, but those further up the scale are only really applicable to higher emission petrol and diesel cars, so have been omitted here. It is worth noting when looking around manufacturers websites, the percentage of a car’s P11D value you pay tax on, as deemed by its CO2 emissions, is often referred to as it’s BiK (benefit-in-kind) rate.

CO2 emissions (g/km)

Percentage of list price you pay tax on in 2021/22

Electric range (miles)

0

1

Any

1 - 50

1

130+

51 - 54

4

70 - 129

55 - 59

7

40 - 69

60 - 64

11

30 - 39
65 - 69131 - 29

Based on the latest UK government new car emissions data, if you want to qualify for the lowest possible company car tax (i.e. 1 per cent) you have to opt for an electric or hydrogen car. This does not mean you are stuck for choice though, as the market is awash with options. Our guide to the best electric cars to buy gives an indication of the variety.

Electric company car tax for 2022/23

For the 2022/23 tax year, the amount of tax you pay in each band is being increased – the implications for electric cars is that you will pay 2 per cent tax rather than 1 per cent. Similar to the above, we have broken down what this means for the tax bands electric cars will be in.

As the range of CO2 emissions for each tax band won’t change – i.e. 1-50 g/km of CO2 is still the second lowest band – this shouldn’t affect the cars which can be scooped up, just the amount of tax you pay.

CO2 emissions (g/km)

Percentage of list price you pay tax on in 2021/22

Electric range (miles)

0

2

Any

1 - 50

2

130+

51 - 54

5

70 - 129

55 - 59

8

40 - 69

60 - 64

12

30 - 39
65 - 69141 - 29

What the above means is you will need to be even more careful when looking at company cars to make sure you aren’t missing out on savings.

It is important to remember, is that unlike vehicle excise duty (known by most as road tax) which is set for a car’s life, company car tax changes with the tax year. For example, if you opted for a Nissan Leaf in the 2019/20 tax year, you would be taxed on 16 per cent of its list price. After the changes in 2020, however, you would pay tax on 2 per cent.

If you're looking for a company car and you can live with a fully electric vehicle, our advice would be to go for one, provided that its list price is relatively close to a hybrid equivalent. If a pure-electric car does not fit with your lifestyle, then you should strongly consider a plug-in hybrid.

Look for a model which has a big electric range, so on top of saving fuel (provided you plug it in regularly), you will reap the rewards of a reduced tax rate.

 

Read more about:

Latest advice

  1. What is E10 fuel and can my car use it?

  2. Outstanding finance on a car

  3. Breakdown cover for older cars