Could new company car tax regulations boost sales of electric cars?


A change to UK company car tax regulations set to be implemented this year could result in a sales boom for electric vehicles.


Sales of electric cars have been steadily increasing with the Society of Motor Manufacturers and Traders reporting that the number sold actually doubled in the second half of 2019 compared to the first six months of the year. At the same time, business lease firm, Alphabet stated it had recorded a 165% rise in orders for plug-in vehicles.


53% of cars sold in the UK from January to December 2019 were company cars, proving that they continue to represent a key business driver even though they are heavily taxed.


In 2002, the government brought in a policy that aligned the tax duty payable with each individual vehicle’s official CO2 emission figure. The higher the CO2 emissions, the more tax there was to pay. This change saw many companies switch from fuel-thirsty cars to more economical diesels with the aim of decreasing the tax burden on both the business and employees with fleet vehicles.


Moving on from that policy, April 2020 will see the introduction of new company car tax regulations that will favour those who select electric cars: they will pay 0% company car tax.


It is expected that this move will trigger a big rise in the adoption of electric vehicles as it is a big incentive for companies and their workforces to ditch traditional petrol or diesel cars for their green counterparts. For example, if a company car driver currently runs a Nissan Leaf EV they will pay between £871 and £1960 in company car tax, depending on their salary. From April, they will pay zero company car tax.


There is, however, a limit the government’s generosity in this particular area. The 0% company car tax incentive will only last for 12 months. From April 2021, the Leaf driver will have to pay £54-£122 in company car tax, rising to £109-£245 the year after that as company car taxes will rise annually.


“It’ll be very interesting to see the cumulative result of the company car tax change over the coming months,” comments Andy Coulton, managing director of Prosol UK. “I think we’ll see many businesses completely overhaul their electric vehicle policy and potentially only offer employees an electric option. This will, of course, have a knock-on effect on sales of petrol and diesel vehicles since fleet cars currently represent over 50% of UK vehicle sales. The motor industry is certainly undergoing an irreversible revolution.”