Budget to include electric car tax break

Company drivers who choose electric cars are to be exempt from benefit in kind (BiK) tax for five years from April 2012. Electric cars currently attract a tax rate of 9 per cent.

The exemption was announced today as part of the Pre-Budget report given by Alistair Darling.

The Chancellor is keen to increase the number of electric cars used by company drivers. At present, only 50 of the 1.1 million company cars in Britain are electric.

Employers will also receive inducements to switch to electric vehicles. National Insurance contributions on company cars paid by employers will be reduced by £480 per car per year.

A motorist driving an electric car pays already pays no vehicle excise duty (road tax), no congestion charges and no fuel tax because no petrol is used.

The tax rate exemption will coincide with the launch of the world’s first mass production car, the Nissan Leaf, as well as four models from Renault.

A spokesperson for the Environmental Transport Association (ETA) said: “Tax breaks are a useful means of promoting electric cars in their early days, but if the uptake is significant they will not be financially or environmentally sustainable.”