Electric cars will remain the vehicle of choice for fleets as the Government continues to incentivise their adoption by businesses with attractive benefit in kind taxation rates.
Today (17 November 2022), the Chancellor Jeremy Hunt announced in his Autumn Statement that benefit in kind rates for zero emission cars will increase from 2% in 2025 to 5% by 2028 in 1% steps.
The same 1% increase per annum will also apply to plug-in hybrid vehicles, although benefit in kind rates are higher for these vehicles.
Commenting, Managing Director of CBVC Vehicle Management, Mike Manners, said:
This is a welcome decision from the Government. It’s clearly behind the business agenda to decarbonise and with certainty over company car tax rates for electric cars this will only help fleets move more quickly to electrification.
The latest benefit in kind rates for electric cars
Year %rate
2023/24 2
2024/25 2
2025/26 3
2026/27 4
2027/28 5
Chief Executive of the leasing organisation BVRLA, Gerry Keaney, added:
Today marks a key milestone in the UK’s transition to zero emission motoring and cements the momentum we have gathered in recent years. Our sector is the driving force behind getting cleaner, greener vehicles on UK roads, with the tax regime a critical lever in making it happen.
Benefit in Kind rates remaining fair, alongside the clarity provided by years of foresight, gives us a clear path on the road to net zero. The long-term health of the market has been boosted by today’s announcement.
Salary sacrifice remains a critical funding method for employers
The modest changes to the benefit in kind taxation rates also means that companies opting for salary sacrifice will be able to continue offering employees a valuable benefit.
While most of the savings under salary sacrifice come from the tax and National Insurance saved on the gross salary, the employee still has to pay benefit in kind tax. But with these rates remaining so benign a salary sacrifice car remains a cost effective way for non-company car drivers to access electric cars.
Mike Manners added:
It was hugely important that the Government continued to support salary sacrifice. It enables non company car drivers to drive zero emission vehicles for far less than if they were to lease the same vehicle privately. It also helps businesses drive their Environmental, Social and Governance agendas successfully, while lessening the environmental impact of car travel on the environment.
Changes to EV VED
From 2025 the Chancellor announced that electric cars will be required to pay Vehicle Excise Duty.
Currently this will be only £10 for the first year before moving to the standard rate, currently £165, in the second year onwards. However, electric cars costing more than £40,000 will also be liable for the expensive car VED supplement (£355 from years two to seven).
Mike Manners explained:
The change to VED had been trailed so it was not entirely unexpected and I cannot see the increase putting off drivers switching to an EV. The expensive car supplement will add to leasing costs by just over £40 a month, but given the extremely low driver benefit in kind tax, and the reduced whole life running costs of EVs compared with petrol or diesel cars, I don’t think this will disincentivise electric car take up. Obviously it would be better if it wasn’t there, but at some stage VED was always going to come to EVs.
