UK government may abolish tax on company electric cars

The UK government is considering abolishing the tax on company-owned electric cars in a bid to stimulate the market for greener vehicles.

It is believed that Chancellor Alistair Darling may announce the measures in his pre-budget report on Wednesday 9th December as the Labour government is keen to enhance its environmental credentials ahead of the next election and provide a stimulus to car manufacturers.

Businesses currently pay National Insurance contributions and employees pay income tax, based on the cost of company cars and its CO2 emissions. The range varies from 9 percent for electric cars to 10 to 35 percent for diesel and petrol cars.

"The government is thinking about reducing the rate for electric cars from 9 percent to 0 from 2012," a source told Reuters.

According to the same source at the moment there were only about 50 electric company cars out of a fleet of approximately 1.1 million and the expectation is such an incentive will persuade businesses to buy more electric cars as companies such as PSA/Peugeot Citroen SA, Mitsubishi, Renault and alliance partner Nissan advance production in the next 2 years.