Chancellor mulling zero tax for electric company cars

The UK is reportedly considering removing all tax on company-owned electric vehicles to increase corporate demand for greener vehicles.

According to Reuters reports, chancellor Alistair Darling is thinking about cutting the tax rate to zero per cent on those electric cars and vans purchased by businesses as part of tomorrow's pre-Budget report.

Currently, businesses pay tax on company cars through National Insurance contributions, while employees are also taxed on company cars through income tax. Companies' electric cars already enjoy a preferential tax rate of nine per cent, compared to between 10 and 35 per cent for conventional cars.

However, an unnamed source told Reuters that "the government is thinking about reducing the rate for electric cars from nine per cent to zero from 2012. "

He added that currently there are only 50 electric company cars on the road in the UK out of a national fleet of about 1.1 million.

A spokesman for the Treasury declined to comment on the reports ahead of tomorrow's pre-Budget report.

However, any tax cut would fit with the government's wider plans to increase demand for electric vehicles ahead of the launch next year of the first wave of electric cars from mainstream manufacturers such as Nissan, Renault and Peugeot.

Earlier this year, Darling announced plans for an incentive scheme that would offer motorists up to £5,000 towards the cost of electric vehicles and also confirmed changes to the tax system designed to make low-emission company vehicles more attractive to fleet purchasers.

Manufacturers of electric cars and vans are also expected to target the corporate market, as company cars and other business vehicles are typically used for predictable journeys such as commutes or deliveries that can fit with the recharging requirements of electric cars.

Barry Shrier, managing director of Liberty Electric Cars, a UK-based start-up that is working on the development of an electric Land Rover, welcomed the proposed tax cut, predicting that it could provide a major boost to the emerging electric vehicle market.

"The electric vehicle is the perfect solution for businesses' company car needs, as research has shown company cars are mainly used just for commutes – the stereotypical view of travelling salesmen doing 400 miles a day is not actually accurate," he observed. "Any move from government to incentivise demand from this sector would be welcome."

He added that the tax cut could also provide a boost for the wider electric car market, as the resulting adoption of electric vehicles by senior executives would help to "normalise" the technology.