Tax benefits of buying an electric vehicle

Here in the UK, as we wrangle with our net zero carbon commitments and rollercoaster petrol prices, some car industry experts have predicted that sales of new electric vehicles could outstrip those of gas guzzlers years before the infamous 2035 ban on new internal combustion engine (ICE) car sales. 

But there are still sticking points to all-out adoption by the nation’s drivers.

Many motorists have by now been reassured about the great range debate and, with major breakdown organisations now carrying EV boosters, the fears of being stranded by a flat battery are far less than what they once were.

But questions still remain over everything from charging infrastructure to the costs of buying one in the first place.  

Which is where your employer could come in handy if you need a new motor, and you're considering making the switch to an electric car.

There isn’t just one tax break up for grabs here, there are several – for employee and employer. 

Salary sacrifice

If you get a company car at work, you’ll get taxed on it as a benefit in kind, but this tax rate is far less than the 20% to 45% you’d pay on your income.

Currently the tax rate for electric vehicles sits at 3%, with plans to increase by 1-2% per year. But even in 2030, when the expected rate will be 9%, it will still be less than income, making it a saving regardless. Your employer will still pay National Insurance contributions on a benefit in kind.

Your employer can benefit from this lower tax rates as well if you get a company car through salary sacrifice. The most common form of salary sacrifice scheme usually involves a company leasing a car for an employee to use as a company car.

In return, the employee agrees to reduce their salary, for which the employee will be better off as the tax on the benefit in kind is much lower than the tax they would have paid on the salary.

Your employer may also gain from a valuable reduction in Corporation Tax because a full electric vehicle and a company charge point carries a 100% capital allowance relief for the first year. While this benefit was initially planned to end in 2025 it's now been extended to April 2026.

All of these can be a great incentive for your employer to get involved if you're in need of a company car.

Kara Gammell
Personal Finance & Insurance Expert

You could save more than you expect

Let’s say you’d like to buy an EV that would cost £1,000 a month or £12,000 a year. You could decide to take your salary as normal and lease the vehicle yourself after you’ve already been hit for income tax and National Insurance on that cash.

Or, with salary sacrifice, as a lower rate taxpayer you could save the income tax on that £12,000 at 20%, which is £2,400, plus employees National Insurance at 2% which is another £240 a year. That’s a total annual saving of £2,640. 

As a higher rate taxpayer, you could save the income tax on that £12,000 a year at 40%, which is £4,800, plus that National Insurance saving.  

In other words, you could save yourself more than £5,000 by leasing a vehicle through your employer.  

If you own an electric vehicle registered after April 2025, you may also be able to eke out one more little boost . For the first year, you only need to pay the lowest road tax rate of £10.

However, it should be noted that this does go up to the standard rate of £195 in the second year, and electric vehicles with a listed price over £40,000 will also be required to pay the 'luxury car tax fee' on top of their usual rate for five years, which is currently £425 .

The benefits of charging

You can also be reimbursed by your employer for charging a company car, with advisory rates set by HMRC currently at 8p for a home charger or 14p from a public charge point. Although this reimbursement is only tax-free for business mileage, not commuting or private use.

As electricity is not counted as ’fuel’ for the purpose of the fuel benefit charge, any payment made to reimburse the cost of recharging the car will be tax-free as long as HM Revenue and Customs (HMRC) guidelines are followed. UK employers can also currently pay for the installation of a charging point at an employee’s home without a tax charge.

If you've decided that an electric car is right for you, or are seriously considering it, we have a number of tools to help. Find out which electric car is right for you with our Electric Vehicle Tool or compare electric car insurance quotes with us to find the best deal for your next policy.

You can also find out more about how the cost of owning an electric car compares to petrol and diesel with our Electric Car Insurance Index.

^{The information within this article is accurate as of October 2025}