Electric vehicle incentives have changed again after the Autumn Budget 2025. The benefit-in-kind (BiK) rate for electric company cars is now 3% for 2025/26, with planned increases over the rest of the decade, and new road charging rules on the way. At the same time, salary sacrifice and VAT rules still make going electric a tax-efficient option for many retail businesses.
For retailers running company cars, pool cars or small delivery fleets, the sums matter. Energy, wages and rent are all under pressure, so any saving that does not damage staff morale or customer service is worth a look. Over half of new car registrations in September 2025 were electric (including plug-in and hybrid), up from 44% a year earlier, which shows how mainstream electric vehicles (EVs) have become (Office for National Statistics (ONS), 2025).
In this article we run through the key electric vehicle incentives affecting 2025/26, with a focus on benefit in kind, salary sacrifice and VAT on commercial EVs. We also flag the risks and future tax rises, so you can plan calmly rather than reacting late. If you already work with us for accounts or tax, this sits neatly alongside the strategic support we provide through our online accounting service.
Why electric vehicle incentives matter for retailers
Retailers often have a mix of vehicles: a few company cars for directors or area managers, plus vans or small trucks for stock movements and local deliveries. Moving these into electric can help with the following.
- Reduce running costs: Electricity is still cheaper per mile than petrol or diesel for many usage patterns, even after recent energy price rises.
- Support staff retention: A low-tax electric company car is a visible, valued benefit for managers and key staff.
- Protect brand reputation: Customers notice clean vehicles outside their homes or on the high street.
On the tax side, the big driver is benefit in kind. For 2025/26, fully electric company cars are taxed at 3% of the car’s list price, compared with 20%–37% for typical petrol and diesel cars. The government has confirmed the rate will rise to 4% in 2026/27, 5% in 2027/28, and then up again to 7% and 9% in 2028/29 and 2029/30.
That still compares well with traditional cars, but it is a signal that the window for the most generous electric vehicle incentives is slowly narrowing.
Key electric vehicle incentives for company cars
Here are the headline electric vehicle incentives for 2025/26 that most retailers should be aware of.
- Low benefit-in-kind rate: For 2025/26, fully electric company cars are taxed at 3% of the P11D value. For a £40,000 car, the taxable benefit is £1,200, so a basic-rate taxpayer pays £240 a year, or £20 a month, in company car tax.
- Planned, gradual increases: The rate is due to rise by one percentage point per year to 5% by 2027/28, then by two points a year to 9% in 2029/30. That gives retailers time to plan fleet changes instead of rushing decisions.
- Employer national insurance on benefits: Employers pay Class 1A national insurance contributions (NIC) on company car benefits. The rate for 2025/26 is 15% on the taxable value of the benefit, so that same £1,200 benefit costs the employer £180 a year in NIC. HMRC’s own tables confirm this increased rate and the lower £5,000 secondary threshold for employer NICs.
- Future road charging: From April 2028, electric cars are expected to attract a per-mile road charge (currently modelled at 3p per mile for fully electric and 1.5p for plug-in hybrid). That does not affect 2025/26 budgets, but it should be factored into vehicle choice and contract lengths agreed now.
The key message: electric vehicle incentives still stack up well for many retailers, but the direction of travel is towards higher tax over time.
Electric vehicle incentives and salary sacrifice: Where the real savings sit
Salary sacrifice turns EV incentives into something very tangible for both employers and employees. In simple terms, the employee gives up part of their gross salary in return for a fully maintained electric car.
Because the sacrifice happens before tax and national insurance, and the benefit-in-kind rate remains low, everyone can win. For 2025/26, employee NIC is 8% on most earnings in the main band, while employers pay 15% on pay above the £5,000 secondary threshold (HMRC, 2025).
A simplified example for a retail manager in the basic rate tax band.
- The employer leases an electric car at £500 a month.
- The employee sacrifices £500 of gross salary each month.
- The employer saves 15% employer NIC on the £500 – that is £75 a month or £900 a year.
- The employee saves 20% income tax and 8% NIC on the sacrificed £500, a combined 28%. That is £140 a month of tax and NIC saved.
The employee then pays company car tax on the benefit in kind. Using our £40,000 car example, the annual taxable benefit at 3% is £1,200, which costs the employee £240 a year in tax, or £20 a month.
So, in broad terms, this means the following.
- Employee: Instead of paying £500 a month from net pay, their net cost is roughly £500 − £140 + £20 ≈ £380.
- Employer: Saves £900 a year in NIC, which can offset part of the lease cost or be used to strengthen the overall benefits package.
The numbers will vary with earnings levels, car price and contract structure, but for many retailers the combination of electric vehicle incentives and salary sacrifice remains one of the most tax-efficient ways to reward managers.
VAT and commercial electric vehicles
For many high-street or online retailers, vans and other commercial vehicles matter more than company cars. VAT treatment for electric commercial vehicles is, helpfully, similar to other commercial vehicles.
HMRC guidance confirms that, as long as the vehicle is a genuine commercial vehicle used for business, you can generally reclaim VAT in full on the purchase or lease, subject to the normal input tax rules.
Key points for retailers
- Commercial EVs: VAT on qualifying commercial vehicles can usually be recovered in full where there is no significant private use.
- EV charging costs: Where a business pays for charging an electric vehicle used for business at a public charging point, VAT on the electricity can be recovered, again under normal input tax rules.
- Cars versus vans: VAT on electric cars is much harder to reclaim, because the default rule is that cars are available for private use. You need clear evidence and a strict policy to justify any recovery.
Getting VAT wrong can be expensive, so it is worth building EVs into your regular VAT review. If you are unsure how the rules apply to your mix of cars and vans, we can talk this through as part of your regular tax planning.
What businesses should do next about electric vehicle incentives
Electric vehicle incentives are still attractive, but they are also shifting. Benefit-in-kind rates for electric cars remain far lower than for petrol or diesel, yet they are scheduled to rise year-on-year. Employer NIC on benefits and earnings has increased to 15%. A new road charge is pencilled in for 2028. All of this needs to be weighed against day-to-day realities such as cashflow, staffing and logistics.
At the same time, government data shows that electric is no longer niche. Over 120,000 zero-emission cars were registered for the first time in the first quarter of 2025 alone, accounting for 20% of all new registrations (Department for Transport, 2025). Customers and employees increasingly expect retailers to keep pace.
Our view is simple. Rather than chase every headline, retailers should build electric vehicle incentives into a wider fleet and reward strategy.
- Review current vehicles: Map who drives what, on which terms and how much each vehicle costs, including tax.
- Model a couple of EV options: Compare a salary sacrifice electric car with a cash allowance or traditional company car.
- Check VAT and NIC implications: Look at commercial vehicles, charging arrangements and benefit structures to avoid surprises.
- Align with wider plans: Tie EV decisions back to hiring, retention, brand and long-term store or delivery strategy.
If you are considering electric vehicle incentives for your business, or want a sanity check on figures you have been given by a leasing provider, we can help. As online accountants working with retailers across the UK, we are used to stress-testing benefit-in-kind models, salary sacrifice schemes and VAT recovery on commercial EVs.
If you would like tailored advice on electric vehicle incentives for your retail fleet, get in touch with us through our contact page and we will talk through your options before you commit.
