Comparison of electric cars vs. other company cars
When it comes to company car tax, electric cars stand out as the most cost-effective choice for company car drivers. The benefit in kind (BIK) tax rate for electric company cars is significantly lower than for petrol and diesel cars, making them a smart financial decision for both employees and employers.
For the 2025/26 tax year, the BIK rate for electric cars is set at just 3%, with gradual increases of 1% each year until 2027, and then 2% annually until it reaches a maximum of 9% in 2029. In contrast, diesel cars can attract BIK rates as high as 37%, and petrol and diesel cars generally fall into much higher company car tax brackets.
To put this into perspective, consider a company car driver in the 40% income tax bracket: choosing a Tesla Model Y as an electric company car could mean paying around £47 per month in BIK tax, while a similarly priced BMW 3 Series petrol car could result in a monthly BIK tax bill of £458. That’s a saving of over £400 every month, simply by opting for an electric vehicle. On top of this, electric company cars are exempt from Vehicle Excise Duty (VED) until 2025, further reducing the overall tax burden compared to petrol and diesel models.
These substantial tax benefits, combined with lower running costs and environmental advantages, make electric cars the clear winner for company car drivers looking to save money and reduce their tax liabilities. As BIK rates for electric vehicles remain far below those for conventional vehicles, the financial case for making the switch continues to strengthen with each tax year.
Electric car salary sacrifice schemes
EV salary sacrifice is a tax-efficient way to access electric vehicles, allowing employees to drive an electric car while saving money and reducing emissions. Salary sacrifice is where you exchange part of your gross salary for a benefit, in this case, an electric car. This can create even bigger savings on top of the low BIK rates.
By reducing your gross salary, you pay less income tax and National Insurance. However, you will need to pay BIK tax on the electric vehicle as it is considered a taxable benefit. Your employer also saves on their NI contributions, often allowing them to pass on some savings to you. For a higher-rate taxpayer, combining salary sacrifice with the low BIK rate can make an electric car significantly cheaper than buying privately.
These schemes must be set up properly to comply with HMRC rules. Make sure your employer works with a reputable provider. Breakdown cover is often included as part of the comprehensive package in salary sacrifice schemes, providing extra peace of mind.
Other tax benefits for electric cars
Beyond the low BIK rates, electric cars come with several other tax advantages, often referred to as electric car tax benefits. They’re currently exempt from Vehicle Excise Duty (road tax), saving you at least £165 annually.
Businesses buying an electric car as a company vehicle can claim 100% first-year capital allowances. This means writing off the full cost against taxable profits in year one. Electric vans also benefit from attractive tax incentives for businesses, making them a cost-effective choice for commercial fleets. If your employer pays to charge your electric car (at work or at home), you don’t pay the fuel benefit charge. This is another saving compared to petrol cars, diesel car options, and other vehicles.
Electric cars are also exempt from many congestion charges and clean air zone fees, unlike petrol or diesel models. This potentially saves hundreds more each year for urban drivers. By choosing electric vehicles, you help reduce CO2 emissions and contribute to a greener future.
