Government announces Electric Car Grant
On 16 July 2025, the Government announced the relaunch of the Electric Car Grant (ECG), with some changes from the previous Plug-in Car Grant which was scrapped in June 2022. The ECG aims to make electric vehicles (EVs) more accessible, by focusing on affordability.
What is the Electric Car Grant?
To accelerate the shift to zero-emission vehicles, the Government has set aside £650 million to cover grants of up to £3,750 per car, with enough funding to last until 2028. The grant is available only on new electric vehicles with a recommended retail price (RRP) under £37,000 and is applied at the point of sale, whether the car is purchased outright or leased.
The ECG includes two grant bands based on a vehicle’s environmental credentials:
- Band 1: £3,750 for cars with the lowest carbon footprint.
- Band 2: £1,500 for vehicles with moderate sustainability ratings.
To be eligible, vehicle manufacturers must hold a verified Science Based Target, demonstrating a commitment to reducing their environmental impact in line with UK climate goals. This verification is managed by the Science Based Targets Initiative (SBTi).
Which cars qualify for the grant?
Although ECG applications opened for consumers on 16 July 2025, no vehicles have yet been confirmed as eligible, as manufacturers also began submitting eligibility applications on that date. The first approved models are expected to be published on the Government’s website by late July.
Dealerships and leasing providers will be able to process ECG orders from 11 August 2025. If a customer agrees to purchase or lease a qualifying EV between 16 July and 11 August 2025, the grant can still be applied retroactively - once that vehicle is approved.
There’s no limit on the number of eligible EVs a business can order for its fleet, and importantly, salary sacrifice arrangements will also qualify, enabling employees to benefit from additional savings.
Why consider an electric car?
Company cars provided as part of employment typically create a taxable benefit in kind (BIK) - resulting in Income Tax for the employee and Class 1A National Insurance contributions (NICs) for the employer.
EVs offer significant tax advantages compared to petrol or diesel alternatives. Currently, electric cars attract a BIK rate of just 3%, whereas traditional fuel vehicles can attract rates of up to 37%. Over a vehicle’s lifetime, this means the total cost of ownership (including tax) for EVs is often much lower.
Ensuring your company car policy is tax-efficient - particularly through salary sacrifice schemes - can lead to substantial savings for both employees and employers.
Changes to payrolling benefits in kind (PBIK)
Payrolling benefits in kind (PBIK) has existed on a voluntary basis since April 2016 to enable the reporting of most employee benefits through payroll Real Time Information (RTI). However, HMRC has published plans to mandate the reporting from April 2027, but ahead of this change, it would be beneficial to start planning as early as possible by:
- Communicating with payroll departments, benefit providers, and employees to ensure they are aware
- Reviewing management information to ensure data is accurate
- Managing any complex issues such as employers who have employees with variable pay periods
- Managing any cash flow implications caused by Class 1A NICs being payable monthly rather than annually
We’re here to help
If you would like any advice on switching to electric vehicles, the related tax considerations, or the changes to PBIK, please contact a member of our specialist Employment Tax team via the form below.
Additionally, our sister firm, Azets Wealth Management, supports businesses in optimising their employee benefits packages. This includes reviewing car schemes and advising on a transition to electric vehicles as part of a wider retention and recruitment strategy. Find out more here.
