Can buying an electric vehicle via a workplace scheme reduce your tax bill?
Written by
Kate Hughes
4 min read
Updated: 13 Mar 2024
Keen to start your electric driving adventure? Check in with HR first, and you might save yourself a fortune.
First there were bikes and childcare vouchers, then the workplace pension – all useful, efficient ways to manage everyday financial needs straight through your pay, while saving you cash at the same time.
Now though, if you’re really in the know, you’re getting your electric vehicle (EV) through work. Why? Because of the financial benefits.
Electric vehicles have taken the world by storm, and that’s putting it mildly. Back in 2017, just one in every 70 passenger vehicles sold across the globe was electric. Last year the International Energy Agency (IEA) bumped that up to one in every seven.
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 EVs 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. Most motorists have by now been reassured about the great range debate and, with major breakdown organisations now carrying EV boosters, the fears of getting stuck on the hard shoulder in the back of beyond are fading. But questions still remain over everything from charging infrastructure to the cost of buying one in the first place.
Which is where your boss could come in handy if you need a new motor, and the temptation of an EV is calling to you.
Number-crunching
For as long as anyone can remember, governments have been using tax incentives to alter the course of social norms, and transitioning an entire society from ICE vehicles to electric is no exception.
In fact, there isn’t just one tax break up for grabs here, there are several – for employee and employer.
If you get a company car at work, you’ll get taxed on it as a benefit in kind. But this tax rate is currently just 2% of the list price for company EVs - far less than the 20% or 40% you’d pay on your income. (Your employer still pays National Insurance on the benefit in kind.)
Salary sacrifice
Salary sacrifice was once a bit of a buzzword in accounting, but rule changes in 2017 killed off the tax advantages of doing so. Unless you’re talking about using the money for a low or zero emission vehicle, that is.
“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,” says Andrew Law, Chartered Tax Adviser for accountancy firm Albert Goodman.
“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 - let’s say 40% income tax and 2% National Insurance.”
For example, 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.
And it won’t necessarily be a hard sell to your boss either, because your employer is also better off by not paying as much National Insurance on your lower salary.
They may also gain from a valuable reduction in Corporation Tax because a full EV carries a 100% capital allowance relief for the first year.
But that’s not all.
If your employer has a workplace charging point, you won’t pay a benefit in kind for charging at work and your employer could get 100% capital allowance on the installation in the first year - again reducing their Corporation Tax hit.
“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,” says Steve Wade, Partner, People Advisory Services at EY in the UK.
You may not even have to fork out for an at home charger, which some estate agents now believe adds value to a property.
“The cost of charging a company car is now tax free whether at a place of work, service station, or at home, but the employer can also pay for the installation of a charging point at an employee’s home without a tax charge,” notes Law.
“And while the charging of a personal electric car at a place of work is tax free, the cost of charging elsewhere can be reimbursed tax free for business mileage allowance at 45p per mile,” he adds.
Just watch out for private and work use though, as they’re treated differently for tax purposes. It’s important to keep a record of your personal versus work mileage when using a company vehicle regardless of whether it’s powered by diesel, petrol, electric or a combination.
Finally, you can still eke out one more little boost. Until 2025, there’s still no road tax to pay on EVs. Cars registered from April 2025 will pay the lowest rate of £10 in the first year, before the cost steadily rises to the standard rate - currently £165. Cars first registered after April 2017 will also pay the standard rate.
“In essence,” says Wade, “these arrangements can prove to be an effective way for businesses and their employees to reduce their tax burden while shifting towards cleaner, greener transport.”
To find out more about owning an electric vehicle, check out the following guides:
