Sep 08

Electric company car tax: benefits and future changes

Company car numbers fell by 240,000 between 2015/16 and 2020/21, but have increased every year since. Much of this recovery has been driven by the favourable tax treatment available for electric and hybrid vehicles.

HMRC’s latest figures for the 2024/25 tax year show that there are now 920,000 directors and employees with company cars.

Lower emission vehicles

The most marked change applies to fully electric company cars. Before 2020/21, this type of company car was something of a novelty, but numbers have since taken off, accounting for  just over half of the total by 2024/25. Add in low emission hybrid variants (CO2 emissions between 1 and 50 grams per kilometre) and it’s just about three-quarters of the total. In fact:

  • The tax cost of having a low emission company car is significantly lower compared to a petrol or diesel variant. For the current tax year, a fully electric company car has a 4% benefit-in-kind rate.
  • This means that the annual tax cost for a higher rate taxpaying director with a company-provided Tesla Y Performance Auto is around £990 – despite such a car costing well in excess of £60,000.

There is also no taxable benefit if the employer provides a charging point for directors and employees to recharge an electric company car either at work or at home, adding to the tax advantages.

The tax position is less advantageous for low emission hybrids, as the benefit-in-kind rate will typically be between 10% and 16%. For a Toyota Prius plug-in hybrid costing around £38,000, the annual tax cost for a higher rate taxpaying employee will be just over £1,500; still not excessive.

Future changes

By 2029/30, the current benefit-in-kind rate of 4% will increase to a much less favourable 9%, putting up the annual tax cost of the Tesla to just over £3,300. Future increases will push up the tax cost of the Toyota Prius hybrid to around £2,870.

The tax cost of having a company car can be calculated using HMRC’s company car and car fuel benefit calculator.

For more information, contact us on 0330 1070 873 or email info@smh.group.