The government has been using tax incentives to boost demand for vehicles with the lowest CO2 emissions. Company car tax bands are under constant change as new technologies emerge and usually adjusted every April, at the start of the new financial year.

In the past they have been aimed at boosting demand first for diesels, then hybrids and now electric vehicles. Businesses are always keen to take advantage and it’s now estimated that over half of new business contract hires have some sort of battery electrification.

As the choice of EVs and hybrids grows, electric company cars become more attractive although there is still the issue of a reliable charging infrastructure.

HMRC classes company cars as a Benefit in Kind (BIK) and tax bills vary, but generally the cars with the largest engines, or those which emit the most CO2 will have the system weighted against them.

But EVs don’t emit any CO2 so you can expect bigger discounts. What does that mean?

All company cars are given a ‘taxable value’, a percentage of the list price (ranging from 2% to 37%) based on its CO2 emissions. These bands have been frozen until April 2025, which means EV drivers are only being taxed based on 2% of the list price until that date. Weigh that against the most efficient petrol, diesel or hybrid which are taxed at 25% or more.

Annual BIK payments are a percentage of the taxable value, which matches the income tax rate. England, Wales and Northern Ireland use three bands – 20%, 40% and 45%, while Scotland has five, ranging from 19% to 46%.

This means a 20% taxpayer would pay 20% of the taxable value each year, so an electric car could reduce a driver’s tax bill by between 90 and 95%.