What are the tax incentives for electric cars?

Electric cars are generally cheaper to run than their internal combustion engine (ICE) counterparts. They cost less per mile in ‘fuel’, especially when you recharge off-peak overnight or manage to find a free public charging point. They can also cost less in maintenance, with fewer moving parts and generally less to go wrong.

But one area where many people love to save money is tax, and this is especially true for motorists, whose day-to-day costs include vehicle tax, fuel duty on petrol and diesel, and VAT on new cars, replacement parts and labour costs of any repair work.

So what tax incentives are there for electric cars? In this guide, we’ve picked a few of the main areas where electric cars save on tax compared with ICEs and a couple of tax-like costs that you can avoid by driving a zero-emission vehicle.

Electric Car Vehicle Tax (Aka Road Tax Or Vehicle Excise Duty)

It goes by many names, but what most of us know simply as ‘road tax’ is an annual cost of owning and driving any vehicle — except for electric cars. Vehicles with emissions of less than 50g/km that are powered by ‘alternative fuels’, like hybrid EVs and fully electric EVs, pay no vehicle tax in the year they are registered.

Fully electric vehicles are exempt from road tax in subsequent years too, including new EVs valued at over £40,000, which get an exemption from the £355 of extra vehicle tax normally charged on high-value vehicles in their first five years on the road — that adds up to a maximum of 4.4% of the vehicle’s total value.

PAYE Income Tax Incentives For Electric Company Cars

If you receive an electric company car as an employment benefit, and your employer lets you use the vehicle for private purposes outside of your working hours, you will have to pay tax on the value you get from doing this, calculated as a ‘benefit in kind’ and including any fuel you use in your personal time that is paid for by your employer.

However, the calculation of this tax includes the fuel type of the vehicle, its tailpipe emissions and its maximum zero-emissions range. As such, you’re likely to pay significantly less tax for an electric company car than you would for an internal combustion engine equivalent.

Congestion Charges And Clean Air Zones

While they are not ‘taxes’ as such, most conventional vehicles now have to pay to enter Central London due to the Congestion Charge, as well as to enter the Ultra Low Emission Zone or ULEZ. Similar schemes are being introduced in cities around the UK in an attempt to tackle air quality concerns.

Zero-emission EVs typically qualify for an exemption to these kinds of charges. While this might not last forever in the case of congestion charges, which are designed to tackle the number of cars in an urban area, exemptions are likely to remain for emission zones, which are aimed specifically at reducing harmful exhaust fumes.

Plug-In Grants And Ev Charging Point Grants

Finally, financial incentives are available when you buy a new electric vehicle or install a home charging point for an EV only if you live in flat or rent a property.

Plug-in grants cover eight categories of electric vehicles, including cars, taxis, small vans, large vans, trucks, motorcycles, mopeds and wheelchair accessible vehicles.

For electric cars, plug-in grants are capped at £1,500 and a maximum of 35% of the purchase price of the vehicle. The car itself must be from the list of government-approved models, have zero tailpipe CO2 emissions, and no emissions over a range of at least 70 miles.

The vehicle’s total recommended retail price — including VAT and delivery — must be less than £32,000 to qualify. There are a limited number of grants of up to £2,500 available to convert certain eligible cars to be wheelchair accessible, too.

Finally, if you want to install a home EV charging point, the EV Charging Point grant of up to £350 ended on 31 March 2022. This has been replaced currently by the EV Chargepoint Grant, which is only available to those who live in a flat or rent a property.

Final Thoughts

Electric car tax incentives and other cost incentives frequently change as new government targets are set, and new congestion charges and low emission zones are created.

The list provided here is accurate as of spring 2022 and these current incentives are likely to change and evolve in the years to come as UK motorists move increasingly over to EVs as the default option.