Company car tax guide: how to save money while moving to electric
Choosing a company car, or deciding to take a cash allowance instead, depends on a clear understanding of Benefit-in-Kind (BIK) tax. As the UK government moves the country toward a zero-emission fleet, the tax rules are changing. To make the best financial decision, you need to look at the list price of the car, its CO2 emissions and how much value it will lose over time.
How your tax is actually worked out
The amount of tax you pay is based on three main things:
P11D Value: This is the list price of the car. It includes VAT and any options you have added, but it does not include the road tax.
BIK Percentage: This is set by the car’s CO2 emissions and how far it can travel on electric power alone.
Income Tax Band: This depends on whether you pay 20%, 40% or 45% income tax.
The formula: (P11D Value x BIK Rate x Income Tax Band = Annual Tax Bill
A look at the tax rates for the coming years
The government has already confirmed the BIK rates for electric vehicles (EVs) through to 2028. While electric cars are still the cheapest way to run a company vehicle, the rates are going up slowly every year.
Tax Year | Electric (0g/km) | Hybrid (1-50g/km, 130+ mile range) | Typical Petrol/Diesel (100-104g/km) |
2024/25 | 2% | 2% | 25% |
2025/26 | 3% | 3% | 26% |
2026/27 | 4% | 4% | 27% |
2027/28 | 5% | 5% | 28% |
Note: Diesel cars that do not meet the RDE2 standards have a 4% surcharge, up to a maximum of 37%.
The extra cost of luxury electric cars
Many drivers forget about road tax (VED) when looking at electric cars, mainly because they used to be free to tax. However, all electric cars now pay road tax, and there is a specific surcharge for more expensive models.
While petrol and diesel cars get hit with a luxury tax if they cost more than £40,000, the government has been a bit more generous with electric cars. Because batteries are expensive, the threshold for electric vehicles has been raised to £50,000.
If your electric car had a list price of over £50,000 when it was brand new, you have to pay an extra £440 a year for five years, starting from the second year the car is registered. When you add this to the standard road tax rate of £200, the total annual bill for a high end electric car is £640.
Buying new through the company vs buying used personally
The main downside of a new company car is that your BIK tax is linked to a high list price. An alternative is to take a cash allowance and buy a used car personally. This way, you avoid the biggest drop in the car's value and you do not have to pay any BIK tax at all.
Comparing the costs
This table compares a New Electric SUV provided by a company against a 3-Year-Old Electric SUV bought personally using a cash allowance.
Feature | New Company EV (£60k P11D) | Used Personal EV (£30k Purchase) |
Annual BIK Tax (40% Payer) | £960 (at 4%) | £0 |
Tax on Allowance | Depends on salary sacrifice or company funded status | Taxed as salary (Income Tax & NI) |
Road Tax & Luxury Surcharge | £640 (Usually paid by company) | £640 (Paid by you if original price >£50k) |
Annual Depreciation | c.£9,000 (Paid by the company) | c. £3,000 (Your cost) |
Mileage Claims | AER rates (currently 8p/mile) | Up to 45p per mile (Tax-free) |
Why buying used often makes more sense: While the BIK on a new electric car is low, you are often giving up a large cash allowance to get it. By taking the cash and buying a three year old car, you avoid that initial 40% to 50% drop in value. You can also claim 45p per mile for business trips tax free, which can often pay for the running costs of a used electric car.
What you need to think about when choosing
When you look at the hidden costs of depreciation and the benefits of mileage claims, the used route often saves you thousands of pounds over a few years.
Consideration | New Company Car (EV) | Used Personal Purchase (EV) |
Financial Winner | Good for high tax payers who want everything managed for them. | Best for protecting your money and avoiding depreciation. |
Risk | Very low. The company takes the hit if the technology changes or values drop. | Medium. You own the car and take the risk on what it will be worth later. |
Technology | You get the very latest features and the fastest charging speeds. | Slightly older technology, but usually plenty for most daily driving. |
The most efficient choice | Salary sacrifice on a lower priced electric car. | Buying a 2 or 3 year old premium electric car personally. |
To sum it up: If you want the latest technology and no financial risk, the company car is the way to go. But if you want to keep more of your hard earned salary, taking the allowance and buying a used electric car is the smartest move you can make in the current market. Just keep an eye on that original list price to make sure you aren't surprised by a £640 tax bill every year.
Find out how much you can save on dealer finance rates below
