Electric vehicles come with a number of benefits, such as zero road tax and exemptions from other charges that petrol and diesel car owners will pay. This guide covers all the tax incentives you will enjoy as an electric car owner and help you decide whether to make the switch.
After the first year vehicle owners pay Vehicle Excise Duty (VED), commonly known as road tax, annually at a flat rate. The amount you are liable for depends on how polluting your vehicle is and ranges from zero to £165 each year. In addition, there is a surcharge of £355 for the first 5 years for vehicles costing over £40,000.
There is no road tax or VED payable on fully electric vehicles and no surcharge on those costing over £40,000, as they emit zero emissions.
Since hybrid vehicles still use petrol, they do not have zero CO2 emissions and are therefore not exempt from all of the charges that EVs are exempt from. Instead, hybrid cars often pay a reduced rate where electric cars are fully exempt.
Hybrid vehicles attract a reduced rate of £155 for road tax/ VED compared with £165 for petrol and diesel cars. Hybrid owners are liable for the £355 surcharge if their vehicle costs more than £40,000.
Ultra Low emission Zones (ULEZ) and Clean Air Zones (CAZ) are being introduced by local authorities to improve air quality in highly polluted cities centres. If your vehicle does not meet the emissions standard for the zone, then you may have to pay a charge to enter it.
Electric vehicles are exempt from all ULEZ, CAZ and congestion charges.
Provided your hybrid car meets the required emissions standards, then it will be exempt from ULEZ and CAZ charges. However hybrids are usually not exempt from congestion charges.
The first tax payment on a new car varies depending on its CO2 emissions, from £0 to £2,365 for the most polluting petrol and diesel cars.
Since this tax is based on emissions and electric cars have no CO2 tailpipe emissions, then you will pay no tax on your electric vehicle in the first year.
For hybrid cars, the amount you pay in the first year will depend on the emissions of your specific car, but this is typically between £0 and £105.
Company cars that are used outside of work (including commuting) attract a Benefit-in-Kind (BiK) tax. The rate depends on the car’s CO2 emissions, its list price and your earnings.
If your company car is an electric vehicle, then you are not liable for BiK tax.
As a hybrid owner, you are liable for BiK tax at a rate determined by your car’s emissions.
Fuel duty is included in the price of petrol and diesel at a rate of 52.95 pence per litre (as of the date of publishing). VAT is also applied to fuel duty at 20%.
Fuel duty is not added to electricity, regardless of where you charge. So electric cars do not pay fuel duty.
Hybrids use petrol, so they will pay fuel duty at the standard rate. However, naturally they use less petrol so will pay less duty.
VAT is payable on all fuel, including petrol, diesel and electricity. So electric cars do pay fuel tax. Typically fuel tax is 20% unless you charge at home when it reduces to 5% on electricity.
If you own an electric vehicle, you will still need to pay 20% VAT on electricity when you charge the battery. However, if you charge at home the rate is only 5%.
As a hybrid owner, you will pay 20% VAT on petrol when you fill up at the pump. If you own a plug-in hybrid, you can also reduce the VAT you pay on fuel down to 5% by charging at home.
New Car Tax also known as VAT is charged at 20% on all new cars and is typically included in the list price.
VAT is charged at 20% on all new cars including both electric vehicles and hybrid vehicles. So owners of electric cars do pay new car tax (VAT). The advertised price will include VAT.
