How Much Will Electric Car Tax Be

How Much Will Electric Car Tax Be

Electric cars offer numerous benefits over petrol and diesel vehicles, from lower fueling costs to reduced environmental impact. But another major incentive for drivers is the low tax rates applied to electric vehicles in the UK.

With the sale of new petrol and diesel cars banned from 2030, understanding current and future electric car taxation is essential for British motorists considering the switch to emissions-free motoring. This guide will examine how much tax you pay for owning and driving an electric vehicle in Britain.

Current Electric Car Tax Rates

The UK government uses favorable tax policies to encourage electric vehicle uptake. Some key EV tax benefits include:

  • 0% VAT on lease or purchase – Saving 20% VAT on petrol/diesel cars
  • 0% company car BiK tax (until 2025) – Saving up to 37% tax for corporate EV users
  • Reduced benefit-in-kind rates – Just 1% for 2022/23, rising to 2% by 2025
  • Zero VED road tax – ICE cars pay up to £2,365 over first 6 years
  • Discounted business lease rates – Via lower P11D values to reduce income tax
  • 100% capital allowances – Full cost of EVs deductible from pre-tax profits
  • Congestion charge exemption – Worth £15 daily for London drivers

These savings make electric cars very attractive for private and company car users alike in terms of overall tax liability.

Future Changes to Electric Car Taxation

While EV tax rates are very favorable today, some changes are coming:

  • Benefit-in-kind company car tax rates will gradually rise from 0% currently to 2% by 2025 as the market matures.
  • VAT relief of 20% on new electric car purchases will be phased out by 2027. This will impact affordability.
  • Road tax-free status will end, with EVs charged VED based on emissions bands from 2025.
  • Grants like the plug-in car grant will be scaled back and potentially eliminated as uptake grows.
  • Workplace charging support is likely to decrease as infrastructure becomes widely available.

To incentivize consumers during the transition to fully electric motoring, taxes will remain lower than comparable petrol/diesel cars. But government relief will diminish over time as ownership costs fall.

Future Changes To Electric Car Taxation
Future Changes to Electric Car Taxation

Company Car Tax Savings with EVs

One of the biggest electric car tax benefits is the huge savings for company car drivers. With many firms covering EV lease costs, going electric can greatly reduce employee tax exposure.

For example, the popular Tesla Model 3 company car incurs just £26 in BiK tax annually for a 20% taxpayer at today’s rates. The petrol BMW 3-Series attracts £1,884 in annual BiK tax by comparison!

Company car BiK tax rates on EVs will remain favorable at just 2% until 2024/25. After this time, rates will begin to align more closely with petrol/diesel cars based on CO2 emissions.

It’s estimated that choosing a mid-range EV over petrol car for employee use can save each driver over £700 annually in income tax until at least 2025.

Tax Considerations for Private EV Owners

For private electric vehicle owners, the tax situation is also very beneficial:

  • Zero yearly road tax vs up to £165 for petrol cars in their first year
  • Zero VAT on lease or finance payments vs 20% for combustion engine vehicles
  • Avoiding petrol/diesel taxes of 57.95p per liter on fuel purchases
  • Exemption from the London congestion charge, worth £15 daily
  • Reduced company car tax if running an EV as a side business

The savings quickly add up. For high-mileage drivers, tax relief on EV purchases compared to petrol/diesel rivals can equate to thousands of pounds over ownership terms.

Tax Considerations For Private Ev Owners
Tax Considerations for Private EV Owners

How Rising EV Adoption Impacts Taxation

As electric vehicles gain market share in the UK, the government will begin paring back EV tax relief to reflect reduced ownership costs:

  • Upfront purchase incentives like the plug-in grant will be withdrawn or reduced in availability.
  • VAT relief on leasing/purchase will be phased out, adding 20% to costs by 2027.
  • Company car benefit-in-kind tax rates will steadily rise from 0% currently to parity with petrol/diesel vehicles.
  • Road taxes will be reintroduced for EVs and hybrids based on emissions ratings.

However, EV tax rates are expected to remain marginally favorable compared to combustion engine cars due to lower running costs and minimal mechanical maintenance.

The Outlook for Electric Car Taxes

While EV tax incentives will moderate as the technology matures, compelling savings will remain for British consumers:

  • Company car users can expect to save hundreds yearly in BiK tax until 2030.
  • EV company fleet adoption will accelerate as tax biases are addressed.
  • Minimal maintenance and fuel costs will sustain TCO advantages.
  • Environmental regulations will continue favoring EVs through parking incentives, low emission zones, etc.
  • Improving battery range and performance will support residual values after incentives phase out.

Regardless of future tax policy changes, electric car tax look set to offer a long-term tax advantage that drives savings for eco-conscious motorists.

The Outlook For Electric Car Taxes
The Outlook for Electric Car Taxes

requirements to qualify for electric vehicle grants

  • Plug-in Car Grant – Provides up to £3,000 off new EV purchases, with these key stipulations:
  • Vehicle must have CO2 emissions under 50g/km and can travel 70 miles without any emissions
  • Vehicle price must be under £35,000
  • Customer must retain the vehicle for at least 6 months
  • Electric Vehicle Home charge Scheme – Provides £350 grant for eligible home charger installation:
  • Available for households with dedicated off-street parking
  • Installer must be certified under the OLEV scheme
  • Charging unit must be a minimum 3kW power output
  • Workplace Charging Scheme – Offers tax relief for businesses installing EV chargers:
  • Available to all UK businesses liable for business tax
  • Covers 75% of equipment and installation costs (up to £350 per socket)
  • Cars, vans and trucks qualify; portion claimed depends on vehicle type
  • Charging infrastructure must be brand new and available to employees

benefits of owning an electric car in the UK beyond just the tax savings:

  • Lower fuel costs – Electricity is cheaper than petrol or diesel per mile. Less maintenance also saves money.
  • Reduced noise and vibration – The quiet and smooth operation of EVs provides a more pleasant driving experience.
  • Instant torque acceleration – Electric motors provide lightning-fast acceleration, enhancing driving enjoyment.
  • Exemption from congestion/emission charges – Worth over £2,000 annually for London commuters.
  • Priority parking – EVs qualify for front row parking spots at most public car parks.
  • Government grants – Up to £3000 off for new EV purchases under £35,000 via the Plug-In Car Grant.
  • HOV lane access – Electric cars can use HOV/bus lanes in cities like Birmingham and Leeds.
  • Workplace charging – Increasingly common company-provided charging benefits employees.
  • Local incentives – Some UK cities offer additional incentives like free parking and road tax exemption.
  • Reduced environmental impact – Driving electric helps address climate change and urban air pollution.
  • Home charging convenience – Charging overnight at home avoids petrol station trips.

With their many perks and incentives, electric cars offer compelling advantages for British drivers beyond just their favorable tax treatment. The ownership benefits continue to multiply as adoption grows.

FAQs

Q: When will electric cars start being taxed?

A: Electric cars are currently exempt from road tax, but will start being taxed from 2025 based on emissions ratings. VAT relief and company car BiK incentives will also be phased out over time.

Q: How much will the road tax be on electric cars?

A: Exact rates are still to be confirmed, but EVs will likely pay a small annual road tax similar to the lowest bands for petrol and diesel cars based on CO2 emissions.

Q: Will electric company cars see higher BiK tax?

A: Yes, the benefit-in-kind tax rate on electric company cars will gradually increase from 0% today to 2% by 2025, reducing tax savings over petrol/diesel vehicles.

Q: When will VAT relief end on new electric car purchases?

A: The exemption from 20% VAT on new EV purchases will be phased out by 2027, adding thousands to the purchase price.

Q: How will second-hand electric car values be impacted?

A: Resale values of used EVs could fall once upfront purchase incentives end, unless battery technology improvements offset this.

Q: Will charging my EV cost more as uptake grows?

A: Potentially yes, if demand strains grid capacity. However, smart charging and batteries providing vehicle-to-grid services could see lower rates.

Q: How will electricity use be taxed for EV charging?

A: Electricity used for domestic EV charging will likely remain exempt from fuel duty. Commercial charging points may see some taxation over time.

Q: When might pollution taxes apply to EVs?

A: Zero-emissions EVs will avoid combustion car pollution taxes, but usage taxes could apply if electricity carbon intensity increases.

Q: Will EVs qualify for any tax incentives after 2030?

A: Possibly fewer purchase incentives but usage incentives like exemption from congestion/emissions charges in cities will likely continue.

Conclusion

In summary, the tax regime governing electric cars in the UK will evolve along with consumer adoption. But generous incentives like low BiK rates for company car drivers will persist for many years due to the lower operating costs EVs provide over petrol and diesel rivals. For British motorists focused on maximizing value, electric vehicles deliver compelling tax savings that will continue making them the smarter choice.

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