Electric Car Tax Benefits for Self-Employed Business Owners

In recent years, electric cars (EVs) have gained popularity because of their environmental friendliness. Besides providing a pollution-free environment it gives huge tax benefits for self-employed. Therefore any self-employed business owner using it or planning to purchase takes advantage of various tax benefits.

Here’s a detailed breakdown of the key tax benefits and savings associated with owning an electric vehicle for self-employed individuals in the UK.

First Year Allowances (FYA)

If you purchase a new fully electric car for business use, you may be eligible for a 100% First Year Allowance (FYA). This means that you can deduct the entire vehicle cost from your profits in the first year, effectively lowering your taxable income. This can be a substantial saving, especially if you buy a high-value EV.

Capital Allowances

For self-employed business owners, one of the most attractive incentives is the ability to claim capital allowances on electric cars. These allow you to deduct part or all of the car’s cost from the taxable profits.

Writing Down Allowances (WDA)

The business owner can claim a writing-down allowance if the electric cars do not qualify for FYA. Typically, cars with CO2 emissions of 50g/km or less (which includes most electric cars) fall into the main rate pool, where you can deduct 18% of the car’s value annually.

BIK Rates for Electric Cars

As of 2023, the BIK rate for pure electric vehicles is 2%, which is much lower than the traditional internal combustion engine (ICE) vehicles. This low rate can lead to significant savings for self-employed business owners.

Mileage and Fuel Benefits

Even though electric vehicles don’t use traditional fuel, the business owner can still claim mileage expenses for business travel in their EV. 45p per mile for the first 10,000 miles can be claimed by the business owner if the electric car is used for business purposes.

VAT Reclaim

VAT-registered self-employed individuals can reclaim VAT on certain expenses related to their electric vehicle. If the electric car is solely used for business purposes then they can reclaim full VAT on the purchase. If the car is used for both business and personal purposes then the VAT amount will be calculated only on the business usage of the car. VAT can be reclaimed on the electricity used to charge your electric car, provided the charging occurs at a place of business.

No Road Tax (VED) for Electric Vehicles

One of the more straightforward savings for EV owners is the exemption from Vehicle Excise Duty (VED), commonly known as road tax. Fully electric cars with zero CO2 emissions are currently exempt from VED. This can save you hundreds of pounds each year compared to owning a petrol or diesel vehicle, which is subject to higher VED rates.

Currently there is no road tax for EV. But, from 1 April 2025 electric vehicles will no longer be exempt from VED. They need to pay road tax and this will apply to both new and existing vehicles.

Congestion Charge and Low Emission Zones

Electric cars are exempt from the London Congestion Charge and other Clean Air Zone (CAZ) or Ultra Low Emission Zone (ULEZ) fees. This is one of the most significant benefits of owning an electric car. Business owners can avail of this benefit if their business operates in or around these areas.

Workplace Charging Scheme (WCS)

The UK government offers the Workplace Charging Scheme (WCS), which provides up to £350 per socket for the installation of EV charging points at business premises, up to a maximum of 40 sockets. This can be particularly useful if your business involves fleets or you want to offer charging for employees or clients.

Conclusion

Using an electric car in the UK as a self-employed business owner has numerous tax advantages and incentives. Besides reducing pollution It significantly reduces the tax burden. By taking advantage of the tax benefits mentioned above, you can make an environmentally conscious choice that also supports your business’s bottom line.