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Electric Car Tax – What’s In Store For 2021-23?

The UK government offers incentives in the form of electric car tax cuts, grants and exemptions for businesses and employees. Here's what you need to know.

electric car tax

With new UK Clean Air Zone charges coming into effect this year, and mounting societal pressure, it’s now a question of ‘when’ and not ‘if’ your business should make the switch to electric vehicles (EVs).

The government is currently offering many incentives in the form of electric car tax cuts, grants and exemptions for businesses and employees. We’ve summarised the latest information you should be aware of below.


Electric car tax UK – current rates

Vehicle Excise Duty: Is there road tax on electric cars?

Regardless of possible exemptions, all vehicle owners must go through the process of taxing their vehicle. But because Vehicle Excise Duty (VED) is calculated according to CO2 tailpipe emissions for all vehicles registered since March 2001, most EV owners will be exempt from any charge:


Pure EVsPlug-in Hybrid Vehicles
Year 1 of ownership£0£0-140 (depending on vehicle’s CO2 emissions)
Annual charge £0£140

Changes introduced in April 2020 also mean that new and existing electric cars with a list price of over £40,000 are exempt from the 5 year ‘Premium rate’ tax. Owners will see a saving of around £1650 – previously having had to pay £325 annually for years 2-6 of ownership.


Electric car BIK rates

Traditionally, employers have been able to offer company cars as an added benefit when attracting new employees. But uptake has been dwindling in recent years thanks to rising benefit-in-kind (BIK) tax rates – the tax an employee must pay for receiving this benefit, based on a vehicle’s fuel type, CO2 emissions and personal income tax percentage.

However, the government’s April 2020 tax update may spark change over the coming months and years, with some generous tax incentives laid out for any business adding electric powered vehicles to their company fleet. The electric car tax for benefit-in-kind for pure-Evs has increased to 1% in April 2021 – 2022 and then 2% from April 2022 – 2023. Lower emission vehicles (up to 50g/km, 130+ mile range) registered before 6 April 2020 will have a frozen BIK rate of 2% until April 2023.

Tax YearPure EVsLower emission vehicles (1-50g/km emissions, 130+ mile range and registered after 6 April 2020)Lower emission vehicles (1-50g/km emissions, 130+ mile range, registered before 6 April 2020)
2020 - 20210%0% 2%
2021 - 20221%1%2%
2022 - 20232%2%2%
2023 & Beyond Rates under review (will be announced this year)Rates under review (will be announced this year)

‘Clean Air Zone’ charges

Part of the UK government’s efforts to improve air quality has seen the introduction of ‘Clean Air Zones’. Some zones will mark out areas where initiatives are in place to reduce emissions, and others will see the introduction of new charges for vehicles that don’t meet minimum emission standards.

London launched its Ultra-Low Emissions Zone last year. Both Bath and Birmingham will also be introducing CAZs. With many more cities planning to take action later this year and 2022.

Daily charges will be steep, and particularly high for larger vehicles – for example London’s ULEZ is currently charging £100 a day for buses, lorries and coaches at Euro 5 or below.

However, ultra-low emission vehicles with a significant zero-emission range will be exempt from all CAZ charges.


ModelJaguar i-Pace BMW 5 Series Saloon
PoweredElectric (av UK mix) – 0cc (0 litre) EV400 S 90kWh 400PS AutoPetrol – 2998cc (3 litre) 540i xDrive M Sport Sport-Auto
CO2 Level0g/km165 g/km
6 April 2021 – 5 April 2022
BIK Rate1% 37%
BIK Value£609£19,514
Tax@20% £122 £3,903
Tax@40%£244 £7,806
6 April 2022 – 5 April 2023
BIK Rate2% 37%
BIK Value£1218.8£19,514
Tax@20%£243.76 £3,903
Tax@40% £487.52£7,806

Electric car grants & other incentives for UK businesses

In addition to 0% VED and BIK rate cuts, there are many grants and additional incentives available to businesses to help make the transition to electric possible. For example:

  • plug-in grant exists for vans, giving 20% off the cost of a qualifying low emissions vehicle, up to a maximum of £8,000.
  • You can also claim 35% off the purchase price of a qualifying electric car for up to a maximum of £3,000.
  • If you place one of the first 200 orders for a qualifying large van or truck, the OLEV grant will pay for 20% of the purchase price, up to a maximum of £20,000. The grant will then pay for 20% of the purchase price, up to a maximum of £8,000.
  • If you choose to install one or more charging stations on your company premises, you can claim an OZEV Workplace Charging Scheme grant which gives you £350 off per charge point socket for up to 40 sockets
  • The Clean Air Fund provides support to individuals and businesses (e.g. vehicle upgrades)

It’s also worth exploring the grants available via your local council authority’s website.


Fleet owners leading the way

We are starting to see meaningful commitment from several large fleet owners, notably from delivery firms including Royal Mail, DPD, UPS and Hermes.

Royal Mail have reportedly introduced close to 300 green-wrapped electric vehicles onto their usual delivery routes since the start of their 2018 involvement with Optimise Prime, – the world’s largest commercial electric vehicle project. And they recently announced the roll-out of another 87. Their vans can be found in parts of London and across the South East.

UPS recently placed an order of 10,000 new electric vans, with plans to have the vehicles in action across the UK, Europe and North America by 2024.

DPD have requested 300 Nissan e-NV200s for roll out in the UK, taking their number of EVs on the road to 450. The firm has expressed a desire to have 10% of their fleet at each of their 68 UK depots powered by electricity.

And Hermes recently transformed their Beckton depot to 100% electric. It now operates with 32 battery electric Nissan eNV200 vans for central London deliveries.

Aside from logistic firms, many other fleet owners are showing commitment, for example global specialists in energy management, Schneider Electric, plan to introduce ‘charging parks’ in their offices and factories and replace 14,000 vehicles in over 50 countries with electric cars by 2030. They are part of Climate Group’s EV100 initiative together with Statkraft, Mer’s owner.

Need a purer way to power your fleet? We set you and your people up with the whole package—so it’s as easy as charge, start, set off.

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