ELECTRIC CAR TAX: The Basics
Many people are now investing in electric vehicles (EVs), with over 13,000 EVs registered in the UK already, encouraged by the large amount of government incentives attached to electric cars and vans.
This guide outlines electric car tax and company electric car tax in the UK, highlighting the benefits drivers will gain in taxing an EV rather than a conventional petrol/diesel car.
ELECTRIC CAR TAX / ROAD TAX
‘Car tax’, formally known as Vehicle Excise Duty (VED), is based either on CO2 emissions or (for older conventional cars) on engine size.
Since March 2001, car tax rates have been based on thirteen car tax bands (A to M), each band being defined by a range of tailpipe CO2 emissions as measured on the official test.
Due to the zero- or low-level of CO2 emissions emitted by electric vehicles (EVs) and Plug-in hybrid vehicles (PHEVs), practically all models are categorised in Tax Band A (<100g/km CO2). This means they are effectively exempt from paying any VED.
It is important to note that even though EV and PHEV drivers can tax their vehicle at zero cost, they must still register the car for legal reasons. Drivers can do this online, in person at a Post Office or by phone.
Notably, as of October 1st 2014, drivers need not worry about displaying a tax disc in their car. The tax disc is being abolished; therefore, taxing an electric vehicle can be as simple as filling in an online form.
Fuel Excise Duty (FED) is a UK fuel tax that is added to the price of road transport fuels before they are sold. This duty applies to all hydrocarbon based fuels including petrol, diesel, biodiesel, and liquefied petroleum gas (LPG) sold for use by vehicles licensed for road use in the UK. Currently, UK fuel duty is currently 58p per litre for petrol and diesel.
As battery electric vehicles (BEVs) are powered by electricity only, no fuel duties are currently levied. However, VAT still applies but is generally charged at a much lower rate than for road fuel (5% versus 20%).
In most cases for electric cars and vans, fuel costs can be as low as 3p per mile (depending on your supplier and tariff). For an annual mileage of around 10,000 miles per year, switching from a conventional to an electric car or van could therefore save you around £800 in fuel costs alone.
However, Plug-in hybrid drivers will be charged FED when filling their vehicle with liquid fuel. For PHEVs, fuel cost saving will depend on how often a PHEV is recharged, as opposed to refuelled. For a car taking half its energy from externally supplied electricity, fuel costs will be cut by around £400 per year for the average driver.
COMPANY ELECTRIC CAR TAX
In 2002, the Chancellor introduced a new system of company car tax designed to encourage employers and company car drivers to choose cars with lower levels of CO2 emissions; incentives are offered both to the company and to the recipient of the vehicle to select low emission vehicles.
Under the current system, company and employee company car tax are both based on a percentage of the official price of the car (called the ‘P11D’), the percentage, being primarily determined by the car’s CO2 emissions. For the employee, the benefit-in-kind (BIK) is then taxed at the appropriate personal tax rate (usually collected through the PAYE system).
For zero-emission battery electric cars, company electric car tax is currently set at 0% BIK but will rise to 5% for the first time next financial year (2015-16) and then to 7% in 2016-17.
For plug-in hybrids, with CO2 emissions of up to 75 g/km, the situation is slightly more complex: for cars with 1-50 g/km CO2 emissions, the BIK rate will be 5% in 2015-16, and 7% in 2016-17; cars having emissions of 51-75 gCO2/km will have a BIK rate of 9% in 2015-16 and 11% in 2016-17.
Beyond 2017: In 2017-18 there will be a 4% differential between the 0-50 and 51-75 gCO2/km bands and between the 51-75 and 76-94 gCO2/km bands. In 2018-19 this differential will reduce to 3%. The differential will reduce further to 2% in 2019-20.