Are electric cars still a tax efficient benefit

Electric vehicles have been positioned as the environmentally conscious choice for company cars, and from a tax perspective, they’ve certainly enjoyed generous treatment from HMRC. But with changing legislation and evolving fuel prices, it’s worth asking: are they still the tax-efficient benefit they once were? We’ll explore the current position and help you decide whether an EV makes financial sense for your business.

The Benefit-in-Kind Tax Position

Company cars attract a benefit-in-kind (BIK) charge based on their CO₂ emissions. For the 2024/25 tax year, the basic rate is 15% of the car’s list price, with the percentage varying according to emissions levels. This is where EVs traditionally shone: electric vehicles with zero tailpipe emissions attract just a 2% BIK charge, making them significantly more tax-efficient than petrol or diesel equivalents.

To illustrate the difference: a petrol car worth £40,000 with 150g CO₂/km would typically result in a BIK charge around £6,000 annually (15% of list price). The same value electric vehicle would attract only £800 in BIK (2% of list price). For higher earners paying 45% tax, that’s a saving of around £2,340 per year—a substantial benefit.

However, it’s crucial to understand that this 2% rate is frozen at this level only until 5 April 2025. From 6 April 2025, the rate increases to 3%, and will continue rising by 1% annually until it reaches 5% in 2028. This is an important consideration when evaluating longer-term value.

Fuel Benefit and Running Costs

The fuel benefit for company cars is generally calculated on a standard scale, currently £27,800 per annum for the 2024/25 tax year. However, if an employee is given a fuel card or cash allowance for fuel, the BIK is based on this figure regardless of actual consumption.

Electric vehicles sidestep this entirely if the employer covers charging costs directly. Many businesses install charging facilities at the workplace or reimburse home charging, which avoids the fuel benefit altogether. This is a genuine advantage over conventionally fuelled cars. That said, you’ll need to account for electricity costs in your business expenses, so the saving isn’t quite as generous as it first appears.

Vehicle excise duty (VED) is another consideration. Zero-emission vehicles pay no road tax for the first year, then £0 annually thereafter—a permanent saving compared to petrol or diesel cars, which pay between £150–£680 per year depending on emissions.

Capital Allowances and Purchase Costs

Businesses purchasing vehicles can claim capital allowances. The current rules allow 100% capital allowance write-off on zero-emission vehicles, but only up to a cost of £50,000 per vehicle. Many premium EVs exceed this threshold, meaning any excess cannot be claimed immediately.

This is worth considering carefully. A Tesla Model 3 might cost around £45,000–£55,000, depending on the specification. The less expensive end qualifies for full relief, but models above £50,000 attract higher depreciation in real terms.

Is an EV Still Worth It?

The answer depends on your specific circumstances. For employees in higher tax brackets, the BIK saving remains material, especially before the 3% rate takes effect next April. The absence of fuel benefit and free VED are genuine ongoing savings.

However, the calculus is shifting. Electric vehicles remain more expensive to purchase than petrol equivalents, and battery degradation over time is an emerging concern. Fuel costs at the pump have also become less shocking than they were two or three years ago, narrowing the running-cost advantage.

We’d recommend evaluating EVs on a case-by-case basis rather than assuming automatic tax efficiency. Compare the total cost of ownership—including purchase price, depreciation, electricity, maintenance, and insurance—against conventional alternatives. For some businesses and employees, an EV remains an excellent choice; for others, the tax tail no longer wags the dog as persuasively as it once did.

Conclusion

Electric vehicles still offer meaningful tax advantages, but the landscape is changing. The rise in BIK from 2% to 3% in April 2025, combined with genuinely competitive petrol and hybrid alternatives, means the decision is now more nuanced. It’s also worth considering your business’s sustainability goals beyond pure tax efficiency—brand reputation and employee wellbeing matter too.

For tailored advice on whether an EV (or any other vehicle) represents the best tax-efficient choice for your company, contact Severn Accounting—we’re here to help.