Are You Electric? Why electric company cars are becoming the smart choice

Having a company car that you can drive freely means you will be required to pay tax on this benefit. The total tax you pay each year depends on your income tax rate, the car’s CO2 emissions and its fuel type.

What is Benefit In Kind (BIK) on company cars?

Electric cars are becoming an increasingly popular choice for employees, largely due to their low Benefit In Kind (BIK) rates compared to petrol and diesel cars.

From April 2026, electric cars will attract only 4% BIK tax. Compared to 37% for petrol and diesel cars, this makes electric vehicles the most tax-efficient option.

What tax will I pay on an electric company car?

Electric cars have no tailpipe emissions, which reduces the amount of tax you pay compared to petrol and diesel vehicles.

The government is gradually increasing BIK rates for electric cars by 1% each year until 2030, when the rate will reach 9%. Even with these increases, electric cars will remain significantly more tax-efficient.

For example, if you choose an electric car with a P11D value of £50,000 and you are a higher rate taxpayer, your taxable benefit would be £2,000. The tax you would pay each year would be approximately £800.

If you chose a petrol or diesel car of the same value, the taxable benefit would increase to £18,500 and the yearly tax would rise to £7,400.

Comparing both, the electric car is clearly the more tax-efficient option if you are looking to save money.

Leasing an electric car through salary sacrifice

If your company offers leasing of electric vehicles, this can be one of the most effective ways to drive a new electric car at a reduced cost.

As an employee, the monthly cost is deducted from your gross salary, meaning your income tax and National Insurance contributions are calculated after the deduction. This reduces the amount of tax you pay each month.

As you are leasing the car, neither you nor your employer owns the vehicle, so there are no financial obligations at the end of the contract.

Agreements usually last between 2 to 4 years, meaning you could drive a new car every few years.

Do businesses benefit from electric vehicles?

Yes. Electric cars are zero emission vehicles and qualify for 100% first year capital allowances.

This means your company can write off the full cost of the vehicle against taxable profits in the year of purchase.

Switching to electric vehicles is also an effective way to reduce your business’s carbon footprint.

Do you need a charging point?

The government offers a grant for home and workplace charging points, available until 31 March 2027.

The grant provides up to £500 towards the cost of installing a charge point.

Workplaces can apply for the grant for each socket installed, up to a maximum of 40 sockets across all sites. This means eligible businesses can claim up to £20,000.

If your workplace has charging facilities, you may be able to charge your car during the working day, either free of charge or at a reduced rate, helping to lower running costs.

To qualify for the grant, you must apply before the charge point is installed.

Do electric company cars pay road tax?

From 1 April 2025, electric vehicles are subject to Vehicle Excise Duty, commonly known as road tax.

If your vehicle is registered after this date, the first year cost is £10.

After the first year, the standard rate increases to £200 annually.

Despite this change, the overall financial advantages of electric vehicles remain strong.

Frequently Asked Questions

What is BIK on electric cars?

Benefit In Kind is the tax you pay on a company car. Electric cars currently have much lower BIK rates than petrol or diesel vehicles.

Are electric company cars cheaper than petrol cars?

Yes. Due to lower BIK rates and running costs, electric company cars are usually significantly cheaper overall.

Can I get an electric car through salary sacrifice?

Many employers offer salary sacrifice schemes, allowing you to lease an electric car using your gross salary, reducing your tax.

Do electric company cars pay road tax?

Yes. From April 2025, electric vehicles are subject to road tax, although rates remain relatively low.

Navigate the way to smarter company car choices

If you are considering switching to electric company cars, or want to understand how it could benefit you or your business, our team can help you navigate the way.

Get in touch today to explore your options.