Quick Answer
Electric vehicle BIK (Benefit in Kind) rates have risen from 2% to 3% from April 2025, yet still offer substantial tax savings compared to petrol and diesel cars, which can attract BIK rates of up to 37%. Salary sacrifice schemes continue to provide 20-50% savings on electric vehicles.
Here are the 5 key areas we’ll cover in detail:
- BIK rate changes: 3% for electric cars in 2025/26, compared to maximum 37% for traditional vehicles
- Salary sacrifice advantages: Significant income tax and National Insurance savings
- Workplace charging support: Up to £14,000 government funding for 40 charge points (£350 per socket)
- Capital allowances: 100% first-year allowance available until March/April 2026
- Real-world savings calculations: Concrete figures for different income brackets
Introduction
Choosing an electric car in 2025 isn’t just an environmental decision – it could be one of the smartest financial choices you’ll make. In the United Kingdom, electric vehicle tax benefits provide such substantial savings that they’re worth considering across virtually every income bracket.
Electric car BIK rates sit at 3% for 2025/26, whilst traditional vehicles can attract rates of up to 37%. This means choosing a premium electric vehicle could save you up to £9,600 annually.
Electric Car BIK Rates for 2025
Current BIK System
The BIK rate for electric vehicles was 2% in the 2024/25 tax year, rising to 3% for 2025/26. This increase continues over the coming years:
| Tax Year | Electric Car BIK Rate | Maximum Traditional Cars |
|---|---|---|
| 2024/25 | 2% | 37% |
| 2025/26 | 3% | 37% |
| 2026/27 | 4% | 37% |
| 2027/28 | 5% | 37% |
BIK Calculation in Practice
BIK tax calculation is straightforward: P11D value × BIK percentage × your personal tax rate.
Example using a Tesla Model 3 (£45,990 P11D value):
- BIK base: £45,990 × 3% = £1,379.70
- For 40% taxpayer: £1,379.70 × 40% = £551.88/year (£46/month)
By comparison, a traditional vehicle would cost several times this amount.
Salary Sacrifice Scheme Benefits
How Salary Sacrifice Works
Salary sacrifice allows you to exchange part of your pre-tax salary for an electric car, resulting in significant savings across three areas:
- Income tax reduction: Lower taxable income
- National Insurance savings: Both employee and employer pay less
- Low BIK tax: Just 3% for electric cars
Savings Calculations by Income Bracket
Basic rate (20%) taxpayer:
- £500/month salary sacrifice
- Income tax saving: £100/month
- National Insurance saving: £10/month
- BIK tax: ~£13/month
- Net saving: £97/month
Higher rate (40%) taxpayer:
- £500/month salary sacrifice
- Income tax saving: £200/month
- National Insurance saving: £10/month
- BIK tax: ~£13/month
- Net saving: £197/month
A real-world example shows an employee contributing £410.75/month whilst actually achieving £159.69/month in net savings.
Workplace Charging Support
Workplace Charging Scheme (WCS)
The Workplace Charging Scheme provides support for up to 40 charge point sockets, capped at £350 per socket.
WCS support details:
- Support level: 75% of total costs
- Maximum support: £350 per socket
- Maximum sockets: 40 across all sites
- Total support: Up to £14,000 (40 × £350)
- Validity: Extended until 31st March 2026
Eligibility Criteria
The WCS is open to businesses, charities, and public sector organisations meeting the following requirements:
- Property ownership or landlord permission
- Dedicated off-street parking spaces
- Use of OZEV-authorised installer
Tax Benefits for Workplace Charging
Providing workplace electric vehicle charging incurs no BIK tax liability. This means employers can offer charging facilities to employees at no additional tax cost.
Capital Allowances and First-Year Allowances
100% First-Year Allowance
Zero-emission cars qualify for 100% first-year allowance (First Year Allowance), providing significant tax savings for businesses.
Capital allowance benefits:
- 100% write-off: Full purchase price deductible in first year
- Immediate tax relief: Reduces pre-tax profits
- Duration: Until 31st March 2026 (corporation tax) / 5th April 2026 (income tax)
Other Business Benefits
Newly introduced VED (vehicle tax) rules: From 1st April 2025, electric cars also pay vehicle tax: £10 in the first year, then £195 annually.
Expensive car supplement:
- Electric cars don’t pay “showroom tax” in first year
- £40,000+ electric cars subject to £425 “expensive car supplement” annually for 5 years (years 2-6)
- This totals £3,100 extra cost over the first 6 years
Real-World Savings Examples Across Different Scenarios
Example 1: Middle Management Position
Individual: 40% taxpayer, £60,000 annual salary Car: BMW iX (£65,000 P11D value) Monthly salary sacrifice: £650
Calculation:
- Traditional lease after tax: £650 + 40% + 2% NI = £942/month
- Salary sacrifice cost: £650/month
- BIK tax: £65,000 × 3% × 40% ÷ 12 = £65/month
- Net monthly cost: £715/month
- Monthly saving: £227/month
- Annual saving: £2,724
Example 2: Higher Income
Individual: 45% taxpayer, £100,000+ annual salary Car: Porsche Taycan (£85,000 P11D value) Monthly salary sacrifice: £800
Higher earners can access a premium Porsche Macan for £667/month through salary sacrifice, £730 less than traditional leasing.
Example 3: Basic Level Income
Individual: 20% taxpayer, £30,000 annual salary Car: Nissan Leaf (£32,000 P11D value) Monthly salary sacrifice:£420
Calculation:
- Salary sacrifice saving: £420 × 22% = £92/month
- BIK tax: £32,000 × 3% × 20% ÷ 12 = £16/month
- Net saving: £76/month
- Annual saving: £912
Comparison Table: Electric vs Traditional Cars
| Category | Electric Car | Traditional Car | Saving |
|---|---|---|---|
| BIK tax (2025/26) | 3% | 20-37% | 17-34% |
| First year VED | £10 | £0-£5,490 | Up to £5,480 |
| Second year+ VED | £195 | £195 | 0% |
| Expensive car supplement (£40k+) | £425/year (years 2-6) | £425/year (years 2-6) | 0% |
| Charging/fuel | £3-4/100 miles | £12-15/100 miles | 70-75% |
| Maintenance | 40% less | Standard | 40% |
| Congestion Charge | £0 | £15/day | 100% |
Step-by-Step Optimisation Guide
Step 1: Check Eligibility
- Does your employer offer a salary sacrifice scheme?
- Which electric cars are available in the fleet?
- What’s the available budget framework?
Step 2: Cost Calculation
- Calculate your current car costs
- Use HMRC’s company car calculator for BIK tax
- Factor in tax savings
Step 3: Car Selection
Important considerations:
- Daily mileage requirements vs. range
- Charging options at home and work
- P11D value vs. BIK cost optimisation
Step 4: Charging Infrastructure
- Apply for WCS support for workplace charging
- Install home charging point (up to £350 support available)
- Plan longer journeys
Step 5: Documentation
- Keep all receipts and invoices
- Track business mileage
- Report changes to payroll
Frequently Asked Questions (FAQ)
What does BIK tax mean for electric cars?
BIK tax is the tax employees pay for personal use of company cars. For electric cars, this is currently 3%, whilst traditional cars can attract up to 37%.
How much can you save with salary sacrifice?
Salary sacrifice typically provides 20-50% savings on electric car costs, depending on your personal tax rate and the car’s value.
When is it worth choosing an electric car?
Electric cars are worthwhile when you:
- Travel less than 200 miles daily
- Have access to home or workplace charging
- Cover 10,000+ miles annually
- Value environmental considerations
What happens if I leave my job?
Salary sacrifice contracts are typically employment-dependent. Upon leaving, you either take on remaining obligations or the employer settles the lease termination.
What happens to £40,000+ electric cars?
Electric cars with list prices over £40,000 incur an additional £425/year “expensive car supplement” from years 2-6. This totals £2,125 extra cost over 5 years on top of the standard £195/year VED.
Important: The government is currently reviewing this £40,000 threshold, as the average electric car price is approximately £50,000, significantly affecting electric vehicle adoption.
How do the 2025 changes affect existing contracts?
Existing electric car contracts are subject to the BIK increase, however the benefits remain substantial.
Expert Tips for Optimisation
2025 Tax Year Key Changes
2025 tax year crucial changes:
- BIK increase from 2% to 3% in April
- VED introduction for new electric cars (£10 first year, £195 thereafter)
- Expensive car supplement (£425/year for 5 years on £40k+ cars)
- Capital allowances extended until 2026
- WCS support continues until March 2026
Long-term Planning
BIK rates continue to increase: in 2028/29 and 2029/30, they’ll rise by 2 percentage points annually, reaching 9% by 2029/30. Despite this, they’ll remain more favourable than traditional car taxation.
Maximising Business Benefits
Employer considerations:
- National Insurance savings
- Supporting CSR and sustainability goals
- Increased employee satisfaction
- Reduced fleet operating costs
Conclusion
Electric car tax benefits in 2025 continue to offer significant financial advantages, despite rising BIK rates. With salary sacrifice schemes, savings of up to £9,600 annually are achievable on premium vehicles, whilst contributing to environmental protection and enjoying cutting-edge technology.
The key lies in proper planning and selecting a car suited to your personal needs. If you regularly use a car, have charging access, and find tax savings attractive, then 2025 remains an excellent year to transition to electric vehicles.
Most important points:
- 3% BIK rate for electric cars in 2025/26
- 20-50% savings with salary sacrifice
- Workplace charging support available until March 2026
- 100% capital allowances for businesses until 2026
- VED introduction (£10+£195), expensive car supplement for £40k+ cars
- Overall taxation of electric cars remains favourable
Sources
This article is based on the following authoritative sources:
- The Electric Car Scheme (2025). “Spring Statement 2025: EV Tax Advantage Remains.”
- Santander Consumer Finance (2025). “Company Car Tax on Electric Cars: Benefit in Kind (BiK) Explained.”
- Electric Car Guide (2025). “EV Benefit in Kind (BIK) Rates in 2025.”
- GOV.UK (2024). “Capital allowances — extension of first-year allowances for zero-emission cars.”
- BDO (2025). “Electric Vehicles & Salary Sacrifice: Tax Benefits.”
