EV Tax in the UK: BIK, VED, Company Car Tax & Grants Explained

Electric vehicles continue to offer significant UK tax advantages, although the picture is changing as EVs become mainstream. This guide sets out the position for the 2026/27 tax year and the changes ahead.

Benefit-in-Kind (BIK) - company car tax

This is the biggest financial incentive for choosing an electric car in the UK. With an employer-provided company car, you pay income tax on a percentage of its list price (P11D value). That percentage, known as the BIK rate, is dramatically lower for EVs:

• 2025/26 - 3% for pure EVs (0g CO2/km)
• 2026/27 - 4% (current year)
• 2027/28 - 5%
• 2028/29 - 7%
• 2029/30 - 9% (capped)

A typical petrol car, by comparison, attracts a BIK rate of 25-37%. For a £40,000 car and a higher-rate (40%) taxpayer:

• EV at 4% - £40,000 × 4% × 40% = £640/year in tax
• Petrol at 30% - £40,000 × 30% × 40% = £4,800/year in tax

The saving exceeds £4,100 a year. Even when the planned 2029/30 rate reaches 9%, a company EV will remain dramatically cheaper than a petrol car.

Salary sacrifice

Salary sacrifice is closely linked to BIK: you exchange part of your pre-tax pay for a car, including insurance, maintenance and charging. Low EV BIK rates mean schemes such as Octopus Electric Vehicles,Loveelectric, and The Electric Car Scheme provide EVs at effective monthly costs well below comparable PCP or lease deals.

Key benefits:

• The salary you sacrifice saves you income tax and National Insurance
• Your employer pays lower NI contributions
• The package includes insurance, maintenance, breakdown cover and sometimes home charging
• Typical effective savings are 30-50% against a personal lease

Calculate the cost for your salary using our EV salary sacrifice calculator, with its minimum wage check and the £100,000 tax trap.

Salary sacrifice is the cheapest way to drive a new EV in the UK for most employed people. If your employer doesn't offer it, it's worth asking - it costs them nothing and saves them NI.

Vehicle Excise Duty (VED) - road tax

The EV exemption from VED ended in April 2025. Current rules are:

• First year rate - £10 for EVs (0g CO2/km). Petrol/diesel cars pay £115 to £5,690 depending on CO2 emissions (2026/27 rates)
• Standard annual rate (year 2+) - £200/year (2026/27) applies to all cars registered after April 2025, matching petrol/diesel rates
• Expensive car supplement - cars above the threshold pay another £440/year in years 2-6. The zero-emission threshold is now £50,000 (up from £40,000 in April 2026), while petrol and diesel retain the £40,000 threshold. This provides significant relief for mid-priced EVs

Cars registered before 1 April 2025 that were originally VED-exempt now pay the standard annual rate but do not pay the expensive car supplement, even if their list price was over £40,000.

VAT

Private buyers receive no VAT relief when purchasing an EV and must pay the standard 20%. However:

• Businesses can reclaim VAT when leasing a car (50% if available for private use, 100% for business-only use)
• Home charging electricity attracts the domestic VAT rate of 5%, rather than 20%. VAT on public charging is 20%

Capital allowances for businesses

Businesses purchasing EVs outright benefit from:

• 100% First Year Allowance (FYA) - write off the full cost of a new zero-emission car against profits in year one. This is a significant cash flow advantage
• EV charge points - also qualify for 100% FYA
• These allowances have been extended to March 2027 (Autumn Budget 2024)

Grants and incentives

The Plug-in Car Grant ended in June 2022, but some incentives remain:

• EV chargepoint grant (OZEV) - up to £500 per socket towards home charger installation for tenants, leaseholders, and people in flats (increased from £350 in April 2026). Homeowners with driveways are no longer eligible
• Workplace Charging Scheme (WCS) - businesses can claim up to £500 per socket (max 40 sockets) for workplace charger installation
• Scottish Government interest-free loan - used EV loan of up to £23,000 (household income under £50,000). Check Energy Saving Trust / Home Energy Scotland for current round availability
• London Congestion Charge - the full Cleaner Vehicle Discount ended 25 December 2025. Since 2 January 2026 the standard charge is £18/day. Electric cars registered for Auto Pay get a 25% discount (£13.50/day) and electric vans 50% (£9/day); without Auto Pay an EV pays the full charge. Discounts reduce further from March 2030
• Clean Air Zone exemptions - EVs do not pay charges in Birmingham, Bath, Bradford, Bristol or other UK CAZs

Insurance

Historically, EV insurance premiums have exceeded those for equivalent petrol cars, primarily because of:

• Repairs cost more (battery damage can result in a write-off)
• Fewer qualified EV repair specialists
• Higher parts prices for newer, less widespread models

However, the gap narrows as EVs become more common and insurers gather more data. Specialist EV insurers such as By Miles (pay-per-mile) can be especially competitive for low-mileage drivers.

What's changing?

The trend is clear: as EV adoption increases, the tax advantages are gradually shrinking. These are the main changes to watch:

1. BIK rates rising - rising from 4% today to 9% by 2029/30 (up by 2% annually from 2027/28). Rates remain well below petrol, although the difference shrinks
2. VED expensive car supplement threshold - increased from £40,000 to £50,000 for zero-emission vehicles in April 2026, saving £440/year for many buyers of mid-priced EVs
3. eVED pay-per-mile charge - from April 2028, EVs will pay 3p/mile and PHEVs 1.5p/mile on top of standard VED rates (announced in the 2025 Budget). Rates will be uprated annually with CPI from 2029/30
4. ZEV mandate - manufacturers are required to sell an increasing share of EVs (28% in 2025, 33% in 2026, reaching 80% by 2030 and 100% by 2035)

In short, electric cars remain substantially cheaper to tax in the UK than petrol or diesel models, particularly through salary sacrifice or company car schemes. The biggest advantage is available now: BIK rates remain very low and are only set to rise. Browse our full database to find an EV that suits you, or read the cheap charging guide to keep running costs down.