Company Car Tax On Electric Cars

Alasdair Cherry 7 minutes Published: 26/08/2021

If there’s ever been a time for businesses to jump on the electric car bandwagon, now is that time.

 HMRC have been busy modifying the current company car tax rates (Benefit in Kind tax). 

The changes that came into place on April 6th, 2020 have highlighted the significant tax savings for businesses who opt for electric or plug-in hybrid company cars rather than equivalent petrol or diesel vehicles.

The Government has taken radical action in their pursuit of meeting the ambitious climate change targets that have been set. This has played into the hands of zero and low CO2 emission vehicles. To put things in perspective, electric company cars registered in 2020 and 2021 will pay absolutely no BiK tax compared to the previous BiK tax rate of 16%. 

Another alteration to company car tax scheduled for the start of the new tax year involves changing the process used to calculate the CO2 figures. CO2 emissions are integral for working out tax rates and come the 6th April 2020, they will be calculated using the Worldwide Harmonised Light Vehicle Test procedure (WLTP) instead of the out-dated (New European Drive Cycle) NEDC.

If you’re looking for a more detailed account on what Benefit in Kind tax actually is, or how company car tax is calculated, take a look at our comprehensive guides on BIK rates and company car tax explained.

This explainer guide here specifically highlights the benefits of electric vehicles as company cars and how BiK rates are calculated. 

Who Pays Company Car Tax?

Most businesses have to pay company car tax and will pay it on electric models after 2021 - but minimally. If you have a limited company car lease, you'll have to pay, but if you have a self employed car lease, you won't.

Some employee benefits are exempt from BIK tax, like the car allowance. You can decide whether a company car or car allowance is best for you. You can also use our car allowance calculator post to see how employers arrive at the final figure.

Switch From NEDC To WLTP CO2 Figures 

As mentioned previously, the current CO2 emissions have been calculated using an official NDEC.

However, in 2018, the Government announced that from 6th April 2020 the CO2 figures used to calculate Bik rates will switch from the outdated NEDC test to the WLTP.

The WLTP procedure was introduced in EU countries in 2017 and has been successful in measuring pollutant emissions and fuel efficiency more accurately.

As a result of the switch, the Government has produced two Bik tax tables - one for drivers with cars registered before the 6th April 2020 and one for those who are planning to register a car after this date. 

BIK Tax Bands For 2020-23 (Car Registered Before April 6 2020) NDEC

Bik electric car tax NDEC

*add 4% up to a maximum of 37% for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard. Diesel plug-in hybrids are exempt from the 4% surcharge as they are classed as alternative fuel vehicles.

BIK Company Car Tax Bands For 2020-23 (Car registered From April 6 2020) WLTP

Bik electric car tax WLTP

*add 4% up to a maximum of 37% for diesel cars that are not certified to the Real Driving Emissions 2 (RDE2) standard. Diesel plug-in hybrids are exempt from the 4% surcharge as they are classed as alternative fuel vehicles.

As you can see from the two tables, there are huge savings benefits available to those who choose a zero emissions electric car or a lower CO2 emissions vehicle like a plug-in hybrid.

Benefit In Kind (BIK) Rates For Electric Vehicles (EVs)

The current (2020/21) BIK tax rate for electric vehicles with zero emissions is 0%.

For cars that emit 1-50g of CO2 and which have 130 miles or more of electric range, the BIK tax rate is also 0%. It goes up to 3% for the same carbon emissions but for 70-129 miles of electric range.

Referencing both the tables above, you may have noticed that zero emission vehicles will be taxed a rate of 0% for 2020/21, followed by a 1% rate in 2021/22 and then 2% in 2022/23. 

These tax rates apply to electric cars that have both been registered before and after the 6th April 2020.

BIK Rate For Plug-In Hybrid Vehicles (PHEVs)

The total amount of company car tax that a plug-in hybrid (PHEV) has to pay depends on how far the vehicle can be driven with zero emissions, rather than its actual CO2 emissions.

This is where tax bands start to vary depending on the registration date, so pay close attention.

PHEVs registered before the 6th April 2020 with an electric range of >130 will have to pay 2% BiK tax for 2020-21 and the subsequent two years.

In contrast, a PHEV registered after the 6th April with the same electric range requires no tax payment for 2020-21, followed by 1% in 2021-22 and 2% in 2022-23. This is the same as a fully electric car.

A PHEV capable of 30 miles or less on electric power is charged 12% compared to 3% for one which can do 70-129 miles. This is something to keep in mind if you want to cut your company car tax costs but you're not sure if you can go fully electric just yet.

How Benefit In Kind (BIK) Tax Is Calculated 

To manually calculate the BiK tax on your EV, you’ll need a calculator and a few important figures:

  • P11D Value - Original list price of your car (with added extras but without registration/tax fees)
  • CO2 Emission tax band (%) 
  • Your Personal Income Tax Bracket

To calculate your company car tax, you need to use the following formula:

P11D Value x CO2 Emissions Tax Band Percentage x Personal Rate = Annual Company Car Tax.

We’re going to show you an example of the annual company car tax for the same electric vehicle from 2020-2023.

Andy’s company have chosen to have a look at the Nissan Leaf 40kWh EV with a range of up to 168 miles. In 2020, it cost the company £30,135. This P11D value will be used throughout the years, rather than adjusting for the contemporary price of the model.

Andy works for a Scottish company and earns £30,000 PA. He falls under the Intermediate Personal Income Tax bracket of 21%


  • P11D value - £30,135
  • CO2 Emissions - 0 g/km
  • CO2 Emission tax band - 0%

In 2020/21 Andy would be paying:

(£30,135 x 0%) = £0 x 21% = £0 per year or £0 per month  


  • P11D value - £30,135
  • CO2 Emissions - 0 g/km
  • CO2 Emission tax band - 1%

In 2021/22 Andy would be paying:

(£30,135 x 1%) = £301.35 x 21% = £63.28 per year or £5.27 per month


  • P11D value - £30,135
  • CO2 Emissions - 0 g/km
  • CO2 Emission tax band - 2%

In 2022/23 Andy would be paying:

(£30,135 x 2%) = £602.70 x 21% = £126.57 per year or £10.55 per month

Vehicle Excise Duty (VED) 

More casually referred to as road tax, Vehicle Excise Duty (VED) is calculated based on your car’s CO2 emissions, list price (P11D value) and the year it was registered.

Since the 31st March 2017, most electric cars have been exempt from paying road tax. The Government initiative has aimed to support drivers who promote clean and sustainable driving.

ved tax rates

Unfortunately, if your electric company car falls under the ‘Premium Rate’ category (worth over £40,000), you’re going to have to fork out for it. Road tax will have to be paid for the first 5 years the car is on the road in addition to any other VED charges.

For PHEVs, you’ll pay in the region of £10-100 for your first year depending on the vehicle’s CO2 emissions and then £135 for the subsequent years.

Top tip - all cars that emit less than 75g/km CO2 will pay significantly less road tax in the first year which will definitely go down well with the boss.

Capital Allowances

You can claim capital allowances for your business through cars you have bought for business use. This enables you to deduct part of the cost you paid for the car from your profits before you pay tax.

The desired criteria for a car is:

  • It must be suitable for private use.
  • Most people use it privately.
  • It must not be built for transporting goods.

The rate that you can claim for capital allowance depends on when you bought the vehicle and of course, the CO2 emissions of the car.

Cars newly bought between April 2015 and April 2018 are eligible to deduct the full value of the car if CO2 emissions are 75g/km or less.

For cars bought after the 31st April 2018, you’re only eligible for a full deduction if the car emits 50g/km or less CO2. 


In a bid to electrify our roads, company car tax on electric cars is cheaper than it has ever been before, and businesses can enjoy the low rates for years to come.

If you're interested in how you can reduce the cost to lease a car for your business, check our car lease tax deduction post. Or if you're leasing a van for business, see our company van tax post.

Ready to take the plunge and take out a business car leasing deal? Check out our electric car lease deals and hybrid lease deals. For inspiration, you can browse our round up of the best electric cars and best hybrid cars.

For more on business contract hire in general, please see our "how does business car leasing work?" guide!