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Running an electric vehicle as a company car

The tax system is currently geared to offer a range of financial incentives intended to increase the take up of electric vehicles.
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30 March 2024

AS a result, employers are well placed to enable and accelerate the switch to electric vehicles, making a positive environmental impact and help to ease pressure on the cost of living.

Currently, there is a very strong business case for making the move to electric. However, there will be challenges to overcome in future, especially as the government seeks to replace much needed revenue from tax on company cars, fuel duty and vehicle excise duty.

Transport is the biggest source of greenhouse gas emissions and accounts for 27% of the UK’s total emissions according to figures published by the Department for Business, Energy and Industrial Strategy.

Based on the figures published, cars and taxis are responsible for 55% of the greenhouse gas emissions from transport. Switching to electric vehicles is an essential step on the UK Road to achieving Net Zero by 2050. In 2020, the government announced the end of the sale of new petrol and diesel cars by 2030, this was then changed to 2035 by Rishi Sunak in response to the burden of the cost of living crisis, so it’s now a question of ‘when’ people will make the switch to an electric vehicle.

Currently, there remains a price premium for electric vehicles when compared with internal combustion engine alternatives. In some cases, the price premium for electric vehicles means they are out of reach for some households. Electric vehicle registrations are growing, with recent figures published by the Society of Motor Manufacturers and Traders showing that they accounted for 6.5% of new car registrations in 2023. However, with electric vehicles only accounting for around 3% of the cars on UK roads, there is a long way
to go.


The example above demonstrates the financial impact for a basic rate taxpayer choosing between a comparable internal combustion engine car or a battery electric vehicle, with the cars provided as a company car or a private car funded with a cash allowance. Opting for a battery electric vehicle as a company car will offer the employee a significant saving when compared to a cash allowance.

As before, the financial benefit is not just for the employee. In this example, a business funding the battery electric vehicle company car would save at least 10% when compared to funding the internal combustion engine company car or cash allowance.

Where an employee has the choice of a company car or cash allowance, the Optional Remuneration Arrangement (OpRA) legislation comes into play. The OpRA legislation largely removes the income tax and NICs advantages of arrangements where an employee gives up the right to an amount of earnings in return for a benefit. The legislation works by calculating a benefit value based on the greater of the earnings given up, or the value based on normal benefit in kind rules. However, the OpRA legislation has an exemption for vehicles with emissions of 75g/km or less, which means it doesn’t apply to most electric vehicles (see ITEPA 2003 s 120A(3)(c)).

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