Electric vehicles offer significant tax advantages for UK employees in the 2025/26 tax year.
From exceptionally low benefit in kind rates to tax-free home charging reimbursements, the government continues incentivising the switch from petrol and diesel.
For employees considering an electric company car or already driving one, understanding these benefits could mean thousands of pounds in annual savings compared to traditional fuel vehicles.
This guide covers the specific tax benefits available to employees with electric vehicles in 2025/26, including company car taxation, salary sacrifice schemes, charging at home and work, and what happens when you use your own EV for business journeys.
Key Takeaways
- Electric company cars attract just 3% BiK in 2025/26, rising to 4% in 2026/27 and 5% in 2027/28
- Salary sacrifice schemes can reduce both income tax and National Insurance on EV costs
- Employers can reimburse home charging costs tax-free at 7p per mile for business journeys
- Workplace charging provided by employers remains completely exempt from benefit in kind
- Using your own electric car for business travel qualifies for the standard 45p/25p AMAP rates
- Vehicle Excise Duty now applies to electric cars from April 2025, but rates remain lower than most petrol equivalents
How Electric Company Car Tax Works in 2025/26
When an employer provides a car for personal use, HMRC treats this as a taxable benefit.
The amount of tax you pay depends on three factors:
- P11D value – The car’s list price including options and VAT, minus registration fee and vehicle tax
- BiK percentage rate – Set by HMRC based on CO2 emissions
- Your personal tax rate – 20% basic rate, 40% higher rate, or 45% additional rate
Electric vs Petrol BiK Rates
Electric vehicles receive dramatically lower BiK rates than petrol or diesel alternatives.
For 2025/26, a pure electric vehicle with zero emissions attracts a BiK rate of just 3%.
Compare this to a typical petrol car which might face rates between 25% and 37% depending on CO2 emissions.
Confirmed Future Rates
The government has confirmed BiK rates for electric vehicles through to 2027/28:
- 2025/26 – 3%
- 2026/27 – 4%
- 2027/28 – 5%
Even at 5%, electric vehicles remain substantially cheaper to tax than combustion engine alternatives.
How to Calculate Your Tax
To calculate your annual tax liability, multiply the P11D value by the BiK percentage, then multiply by your tax rate.
- For a basic rate taxpayer with an electric car valued at £40,000, the 2025/26 calculation would be:
£40,000 × 3% × 20% = £240 annual tax
- A higher rate taxpayer would pay £480 on the same vehicle.
The equivalent petrol car with a 30% BiK rate would cost the basic rate taxpayer £2,400 annually—ten times more than the electric alternative.
Salary Sacrifice Schemes and Electric Vehicles
Salary sacrifice arrangements allow employees to exchange part of their gross salary for a non-cash benefit—in this case, an electric vehicle.
Because the exchange happens before tax and National Insurance are calculated, employees can achieve significant savings.
How Salary Sacrifice Works
The mechanics work as follows:
- Your employer leases an electric vehicle
- You agree to a salary reduction in exchange for the car
- You pay BiK tax on the car’s value
- This BiK tax is typically far less than the income tax and National Insurance you would have paid on the sacrificed salary
Example: The Real Savings
Consider an employee earning £45,000 who sacrifices £500 monthly (£6,000 annually) for an electric car with a P11D value of £40,000:
- Without salary sacrifice – Approximately £2,400 in tax and National Insurance on that £6,000
- With the electric car – Only £240 in BiK tax (at basic rate)
- Net saving – Approximately £2,160 annually, plus a brand new electric vehicle
Benefits for Employers Too
Employers also benefit because they pay reduced National Insurance on the lower salary figure.
This often makes salary sacrifice schemes cost-neutral or even cost-positive for companies, encouraging wider adoption.
If Your Employer Doesn’t Offer Salary Sacrifice
Not all employers offer salary sacrifice schemes for vehicles.
If yours does not, it may be worth raising the possibility with HR or management. The mutual tax efficiencies can make implementation attractive for both parties.
Tax-Free Home Charging for Business Mileage
One frequently overlooked benefit involves reimbursement for charging an electric company car at home.
When you charge your vehicle at home for business journeys, your employer can reimburse the electricity cost without creating a taxable benefit.
The Advisory Electricity Rate
HMRC publishes advisory electricity rates specifically for this purpose.
Example: From 1 December 2024, the rate is 7p per mile for electric vehicles. Your employer can pay you this amount for every business mile driven in your electric company car, completely tax-free.
What Counts as Business Mileage
The process requires keeping accurate records of business mileage. Not all journeys qualify:
- Qualifies – Journeys to temporary workplaces, client sites, or other business destinations
- Does not qualify – Normal commuting between home and your regular workplace
Important Rules to Know
- If your employer reimburses less than the advisory rate, you cannot claim tax relief on the shortfall (unlike with the AMAP system for personal vehicles)
- Employers have no obligation to use the advisory rate—they can pay more or less
- Amounts exceeding advisory rates may become taxable
The Real Value
For employees covering substantial business mileage in electric company cars, home charging reimbursement represents meaningful tax-free income.
Someone driving 10,000 business miles annually could receive £700 tax-free toward their home electricity costs.
Workplace Charging: A Completely Tax-Free Benefit
Electricity provided at workplace charging points for company cars and personal vehicles is entirely exempt from benefit in kind taxation.
This exemption has been in place since 2018 and continues through 2025/26.
Who Qualifies
The exemption applies regardless of whether you drive:
- A company car
- Your own electric vehicle used for business
If your employer installs charging points at work and allows you to charge for free, you pay no tax on this benefit. The exemption covers charging during working hours at your employer’s premises.
The Real Value of Free Workplace Charging
This creates a genuinely tax-free benefit worth potentially hundreds of pounds annually, depending on your charging habits and electricity costs.
At typical domestic rates, charging a vehicle from empty to full might cost £15-20 at home. Doing this at work two or three times weekly represents significant annual value.
For Employers
Employers considering installing workplace chargers should note that the infrastructure costs may qualify for capital allowances.
This makes the investment more attractive from a business tax perspective as well.
Using Your Own Electric Car for Business Travel
Employees who use their personal electric vehicles for business journeys can claim mileage allowance relief, just like those driving petrol or diesel cars.
The approved mileage allowance payment rates apply equally to all fuel types, including electric.
Current AMAP Rates
The rates are designed to cover all vehicle running costs:
- First 10,000 business miles – 45p per mile
- Above 10,000 miles – 25p per mile
These rates cover fuel, insurance, depreciation, and maintenance.
Claiming Tax Relief on Mileage
If your employer pays you less than the AMAP rate for business mileage, you can claim tax relief on the difference.
If they pay nothing, you can claim relief on the full amount.
The claim goes through HMRC:
- P87 form or online Iform – For cases worth below £2,500
- Self Assessment – If you already file a tax return or your claim is worth £2,500 or more
Do EV Owners Benefit from AMAP Rates?
Electric vehicle owners sometimes question whether the 45p rate adequately reflects their lower fuel costs.
While electricity per mile is cheaper than petrol, the AMAP rate also covers depreciation—and electric vehicles currently depreciate differently from combustion cars.
The rate remains the same regardless of fuel type, which arguably benefits EV owners whose per-mile energy costs are lower.
Alternative: Advisory Electricity Rate
Employers can also use the advisory electricity rate (7p per mile) when reimbursing employees for business travel in personal electric vehicles, though this is less common than using AMAP rates.
Vehicle Excise Duty Changes from April 2025
Until April 2025, electric vehicles paid no Vehicle Excise Duty (road tax).
This changed with the 2025/26 tax year, bringing EVs into the VED system for the first time.
New VED Rates for Electric Vehicles
- Standard rate – £195 annually from the second year of registration
- First year rate – Varies based on list price
- Expensive car supplement – £425 annually for vehicles with list price over £40,000 (applies for five years from second year of registration)
For premium electric vehicles, total annual VED could reach £620.
Impact on Company Car Drivers
For company car drivers, VED is typically paid by the employer as the registered keeper.
This change may not directly affect your personal finances. However, it represents an additional cost that employers factor into company car schemes and salary sacrifice calculations.
Still Cheaper Than Petrol
Despite the introduction of VED for electric vehicles, the rates remain lower than many petrol and diesel equivalents.
Higher-emission vehicles can face first-year rates exceeding £2,000.
Electric Vans: Even More Favourable Treatment
Electric vans receive exceptionally favourable tax treatment compared to their diesel counterparts.
For 2025/26, the benefit in kind value for an electric van is zero—meaning employees pay no tax whatsoever on an electric company van used for private journeys.
What the Zero Rate Covers
The nil rate applies to vans that produce zero CO2 emissions and covers:
- All private use
- Commuting journeys
This represents one of the most generous tax benefits available to employees, effectively providing a tax-free vehicle.
No Fuel Benefit Charge Either
There is also no van fuel benefit charge for electric vans.
Employers can provide free charging for private use without creating any taxable benefit.
Comparison with Diesel Vans
Compare this to conventional vans where both benefits create taxable charges:
- Van benefit – £3,960 in 2025/26
- Fuel benefit – £757 in 2025/26
Who Benefits Most
For employees whose roles involve van use—delivery drivers, tradespeople, engineers—an electric van through an employer scheme can offer substantial tax savings.
These savings can offset the current limitations around range and charging infrastructure.
Hybrid Vehicles: A Different Calculation
Plug-in hybrid electric vehicles (PHEVs) do not qualify for the same low BiK rates as pure electric vehicles.
Their rates depend on both CO2 emissions and electric-only range.
2025/26 PHEV BiK Rates
For plug-in hybrids with emissions between 1-50g/km:
- Electric range over 130 miles – 3% BiK rate
- Electric range 70-129 miles – 5% BiK rate
- Electric range 40-69 miles – 8% BiK rate
- Electric range 30-39 miles – 12% BiK rate
- Electric range under 30 miles – 14% BiK rate
Most popular plug-in hybrids fall somewhere in between.
The Tax Difference Matters
The calculation for hybrids becomes more complex, and the tax benefits are notably smaller than for pure electric vehicles.
Employees choosing between a pure EV and a plug-in hybrid should factor in the substantial BiK difference—potentially several hundred pounds annually.
Conventional Hybrids
Hybrid vehicles that cannot plug in (conventional hybrids) receive no special treatment.
They are taxed based purely on CO2 emissions, the same as petrol or diesel vehicles.
What Employers Need to Report
Employers must report company car benefits to HMRC through the P11D system. This includes:
- The car’s list price
- CO2 emissions
- Fuel type
- Dates during which the vehicle was available to the employee
Why Accurate Reporting Matters
For electric vehicles, accurate reporting matters because the zero-emission classification determines the favourable BiK rate.
Employers should ensure they record vehicles correctly as battery electric rather than hybrid.
Checking Your P11D
If you receive a company car, you should receive a copy of your P11D after the end of each tax year (typically by 6 July).
Check that the details match your understanding of the vehicle—errors in recording can result in overpaying tax throughout the year via your tax code.
What Does Not Need Reporting
- Workplace charging facilities (because of the exemption)
- Home charging reimbursements paid within advisory rates
Planning Your Electric Vehicle Decision
The tax advantages of electric company cars remain compelling through at least 2027/28, with BiK rates confirmed at levels dramatically below petrol and diesel alternatives.
For employees offered a choice of company vehicle, or considering whether to request salary sacrifice access, the numbers strongly favour electric.
Beyond Tax: Practical Considerations
However, tax should not be the only consideration. Practical factors include:
- Whether your commute and typical journeys suit electric range
- Whether you have home charging capability
- Whether you have reliable workplace charging access
- Whether the available electric models meet your needs
The Total Cost Picture
For those whose circumstances suit electric vehicles, the combination of benefits can deliver total cost of ownership figures substantially below equivalent petrol or diesel vehicles:
- Low BiK rates
- Tax-free charging options
- Salary sacrifice efficiencies
- Lower fuel costs
- Reduced maintenance costs
Act While Rates Are Low
The window of very low BiK rates will gradually close as rates increase toward 9% by 2029/30.
This still represents major savings compared to combustion vehicles. However, employees considering the switch may benefit from acting while rates remain at their lowest.
Electric Company Cars 2026 FAQs
Q1: What is the BiK rate for electric company cars in 2025/26?
A: Pure electric vehicles with zero CO2 emissions have a benefit in kind rate of 3% for the 2025/26 tax year. This rises to 4% in 2026/27 and 5% in 2027/28. The low rate makes electric company cars significantly cheaper to tax than petrol or diesel alternatives.
Q2: Can my employer reimburse home charging costs tax-free?
A: Yes, employers can reimburse electricity costs for charging an electric company car at home without creating a taxable benefit. HMRC’s advisory electricity rate is currently 7p per mile for business journeys. Normal commuting does not qualify—only travel to temporary workplaces and other business destinations.
Q3: Do electric cars pay road tax from April 2025?
A: Yes, from April 2025 electric vehicles pay Vehicle Excise Duty for the first time. The standard rate is £195 annually from the second year. Vehicles with a list price over £40,000 also pay the expensive car supplement of £425 for five years, potentially bringing total annual VED to £620.
Q4: What mileage rate can I claim for using my own electric car for work?
A: The same approved mileage allowance payment rates apply to all vehicles regardless of fuel type: 45p per mile for the first 10,000 business miles, then 25p per mile thereafter. If your employer pays less than these rates, you can claim tax relief on the difference through HMRC.
Q5: Is workplace charging taxable as a benefit?
A: No, electricity provided at workplace charging points is completely exempt from benefit in kind taxation. This applies whether you drive a company car or your own electric vehicle. The exemption has been in place since 2018 and continues through 2025/26 and beyond.
