We analyse what it means for fleets.
Company car benefit-in-kind tax rates for electric vehicles have been set until April 2028 in order “to provide long term certainty for taxpayers and industry”.
Percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by 1 percentage point in 2025-26, a further 1% in 2026-27 and a further 1% in 2027-28 up to a maximum appropriate percentage of 5% for electric cars and 21% for ultra-low emission cars.
Also, BIK rates for all petrol and diesel vehicle bands will be increased by 1 percentage point for 2025-26 up to a maximum percentage of 37% and will then be fixed in 2026-27 and 2027-28.
The Government’s forecast of its policy for EVs shows a £95 million uplift in benefit-in-kind tax revenue in 2025, and reaching £245 million by 2028, suggesting it envisages a boom in electric company cars over the next few years.
“Bearing in mind that the rises in benefit-in-kind tax will result in the average company car driver of a £40,000 EV being a maximum of 5%, even a 40% taxpayer would have a monthly bill of between £60-70 and no more. So those figures suggest that there will be many hundreds of thousands of electric company cars on our roads by 2028,” said Tom Rowlands, Managing Director, Global EV Solutions, Allstar Business Solutions.
EVs, which are currently exempt from Vehicle Excise Duty, will be subject to the charge from 2025.
It will apply to cars already on the road and not just new registrations. Zero emission cars first registered between 1 April 2017 and 31 March 2025 will pay the standard rate.
The Expensive Car Supplement exemption for electric vehicles will end in 2025, which means new zero emission cars registered on or after 1 April 2025 will be liable. The Expensive Car Supplement currently applies to cars with a list price exceeding £40,000 for 5 years.
This means for EVs the first year VED rate will be £10 plus the £355 Expensive Car Supplement for EVs over £40,000, then £165 annually, which applies for five years from first registration.
For those EVs first registered between 1 March 2001 and 30 March 2017 in Band A will move to the Band B rate, which is currently £20 a year
Full electric vans will also be liable, moving to the same rate as petrol and diesel light goods vehicles, which is currently £290 a year for most vans.
Treasury estimates suggest this will bring in up to £1.5 billion by 2028. Tom said: “As electric cars and vans become the dominant vehicles on our roads, it is only right that they pay their share, because our road infrastructure needs constant attention and upgrading for all types of vehicles, whether they be electric, petrol, diesel or any other fuel.”
From 6 April 2023, Car and Van Fuel Benefit Charges and van benefit charge will increase in line with Consumer Price Index (CPI).
“As the fuel benefit charge continues to rise, it is imperative that fleets have control of business and private fuel expenditure, or HMRC will take a dim view. At Allstar, we can help businesses keep a very tight rein over payments for fuel,” said Paul Holland, UK Managing Director, Allstar Business Solutions.
The 100% First Year Allowance for electric vehicle chargepoints is being extended to 31 March 2025 for corporation tax purposes and 5 April 2025 for income tax purposes. The Government said this will ensure that the tax system continues to incentivise business investment in charging infrastructure.
“One of the next steps to electrification many fleets are considering is installation of chargepoints in workplaces and the extension of the first year allowance will help facilitate that,” said Tom.
Also, in the Office for Budget Responsibility’s supporting document, Economic and fiscal outlook, there was a statement about potential future increased in fuel duty. It said there was a “planned 23 per cent increase in the fuel duty rate in late-March 2023, which adds £5.7 billon to receipts next year.
“This would be a record cash increase, and the first time any Government has raised fuel duty rates in cash terms since 1 January 2011. It is expected to raise the price of petrol and diesel by around 12 pence a litre.”
Such a hike would add thousands of pounds to fleet budgets, but as Paul Holland says, it is not yet certain this increase will go ahead.
“It must be remembered that every planned increase in fuel duty in the past decade has been postponed, and indeed fuel duty was reduced by 5p last March. So at this present time, this statement by the OBR is based on an assumption that the Chancellor would scrap that 5p reduction and increase duty in line with the Retail Price Index,” he said.
“While I would not second guess what could happen in March, politically raising fuel duty by such an amount would be a very tough choice, and whatever the decision, we will ensure our customers are still able to access the cheapest possible fuel and run their fleets as efficiently as possible.”