The Government is to start raising company car tax rates for electric vehicles from 2025, but with yearly increases capped at 1% until 2028 to keep rates low.

BiK rates for fully electric and ultra-low emission cars will undergo yearly increases from 2025 to 2028, but capped at 1%

Announced in today’s Autumn Statement as the Chancellor warned of “decisions of eye-watering difficulty” and confirmed the UK was already in recession, the rates are intended to continue incentivising the take-up of electric vehicles and provide long-term certainty for taxpayers and industry.

The changes, which will be enacted in the Autumn Finance Bill 2022, set out that 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.

Meanwhile, the appropriate percentages for rates for all other vehicle bands will be increased by 1 percentage point for 2025/26 up to a maximum appropriate percentage of 37% and will then be fixed in 2026/27 and 2027/28.

It follows fears from the fleet sector this summer that the Government could suddenly increase Benefit-in-Kind on electric cars due to the misapprehension that incentives for EVs were no longer needed. The industry had said that increasing BiK rates too quickly would potentially affect rates of adoption by fleets and even potentially push people back out of electric company cars into private petrol or diesel alternative.

The fleet sector had also called for much-needed clarity on rates in general; Benefit-in-Kind tables had only been published up until 2024/25, leaving businesses and employees with no indication of what the rate would be for 2025/26 and beyond.

The Government’s policy costings show the benefit to the Treasury from the revised rates will be £9m in 2025/6, £155m in 2026/7 and £245m in 2027/8.

Fleet industry greets “key milestone” 

The BVRLA said the announcement was a “key milestone in the UK’s transition to zero-emission motoring and cements the momentum we have gathered in recent years”.

The association launched its #SeeTheBenefit campaign this summer, pushing for Benefit-in-Kind rates for electric cars to be kept as low as possible for as long as possible, supporting the vital salary sacrifice market and the UK’s net zero plans. Last week, it had also taken the campaign to the Chancellor.

Commenting on today’s announcement, chief executive Gerry Keaney said: “Our sector is the driving force behind getting cleaner, greener vehicles on UK roads, with the tax regime a critical lever in making it happen.”

Adding that the Government had clearly listened to the campaign, Keaney continued: “Benefit-in-Kind rates remaining fair, alongside the clarity provided by years of foresight, gives us a clear path on the road to net zero. The long-term health of the market has been boosted by today’s announcement.”

Lex Autolease also said the publication of company car rates beyond 2025 reaffirmed the Government’s commitment towards a greener future – and gave decision-makers the clarity they needed to accelerate their transition towards EVs.

Ashley Barnett, head of fleet consultancy, outlined: “Fleet replacements typically operate in four-year-cycles and today’s announcement paves the way for future purchasing decisions – giving them the confidence they need to commit to a long-term sustainability plan. With longer lead times from manufacturers delaying the delivery of many vehicles, having clarity beyond 2025 is a major boost for future electric fleet decision making.”

Caroline Sandall-Mansergh, consultancy and channels development manager, Alphabet GB, greeted the move too.

“Today’s announcement gives businesses the clarity they need to make informed and definitive plans for their ongoing fleet electrification strategies,” she said. “We’ll be working closely with all our customers to help them understand what the increases in tax rates means for their business and how to navigate these changes with the very best solutions.”

She continued: “From the BiK increase announced today, the average electric vehicle driver on a £35,000 list price at the 20% tax rate will only be paying an extra £6 a month from April 2025.”

And salary sacrifice specialist Tusker also welcomed the stability on BiK rates, which it said allowed the ongoing adoption of EVs by the British public to continue.

Research published by the firm this week showed that low BiK rates, and the availability of salary sacrifice schemes, were crucial to EV adoption.

Paul Gilshan, CEO, commented: “We remain committed to ensuring ordinary drivers can access affordable EVs and today’s announcement from the Chancellor goes a long way to ensuring that uptake continues.

“Our research proves that the Government’s tax incentives for EV motorists have been the main driver in allowing mass-market drivers to access EVs and that without them, the UK will not meet its targets for 2030. With these incentives protected for a further six years, we can move forward in helping to transform the UK’s roads as we move towards an emission-free future.”

Gilshan also noted that today’s statement was vital for ensuring that motorists continue to be incentivised to step away from petrol and diesel vehicles and into greener, sustainable models instead.

“Our data shows that the total cost of ownership for EVs is notably lower than that of petrol and diesel vehicles, meaning that motorists struggling with the current cost rises continue to be offered a clear advantage in driving a zero-emission vehicle.”

But there were critics.

Edmund King, AA president, said that by making EV company cars less attractive by increasing tax rates – and simultaneously introducing Vehicle Excise Duty – the Government was “slowing the road to electrification”.

He continued: “This may delay the environmental benefits and stall the introduction of EVs onto the second-hand car market. Unfortunately, the Chancellor’s EV taxation actions will dim the incentive to switch to electric vehicles.”

And green campaign group Transport & Environment also slammed the decision.

Ralph Palmer, electric fleets lead at T&E, said: “It was clear that the current BiK rates couldn’t last forever. BEV drivers will now rightly contribute slightly more, but the Treasury should have introduced bigger increases across the board, including for BEVs, while maintaining or strengthening the difference in tax levels compared to other vehicle types.”

Finally, the Association of Fleet Professionals said the increases in company car taxation seemed “well-judged”. Chair Paul Holllick stressed: “Crucially, they will allow fleet decision-makers to plan for the second half of the decade as they continue the process of electrification. This is something for which we have been campaigning in conjunction with BVRLA and it is to be welcomed. Against this backdrop, the VED equalisation with ICE – something that will apply to the vast majority of EVs from 2025/26 – is disappointing but perhaps not unexpected.

“It does feel a little as though the Government has given with one hand and taken some back with the other.”