Powering Up Your Business: The Tax Benefits of a Company Electric Car

In today’s evolving landscape, many UK limited companies are considering the switch to electric vehicles (EVs) for their business needs. Beyond the environmental advantages, there are some significant tax benefits that can make this a very smart financial decision.

Here’s a brief look at why purchasing an electric car through your limited company could be a prudent move:

Generous Capital Allowances: Drive Down Your Corporation Tax Bill

One of the biggest incentives is the 100% First Year Allowance (FYA) for new, unused electric cars with zero CO2 emissions. This means your company can deduct the entire cost of the vehicle from its taxable profits in the year of purchase. For a substantial investment like an electric car, this can lead to a significant reduction in your corporation tax liability.

While the 100% FYA applies to new vehicles, even second-hand electric cars can qualify for an 18% Annual Writing Down Allowance, offering continued tax relief over time.

Low Benefit-in-Kind (BIK) Tax: A Win for Employees and Employers

If an electric car is provided to an employee (including a director) for personal use, it’s considered a “Benefit-in-Kind” and is subject to tax. However, electric vehicles boast exceptionally low BIK rates compared to their petrol or diesel counterparts.

For the current tax year (2025/2026), the BIK rate for fully electric cars is just 3%. While this is set to gradually increase to 4% in 2026/2027 and further in subsequent years, it remains substantially lower than the rates for conventionally fuelled cars (which can be as high as 37%). This translates to significant tax savings for both the employee (lower income tax on the benefit) and the employer (lower Class 1A National Insurance Contributions).

Fuel Savings and No Fuel Benefit Charge

Running an EV is generally cheaper than a petrol or diesel car due to lower electricity costs compared to fuel. Furthermore, a major perk for company electric cars is that electricity is not considered a “fuel” for fuel benefit charge purposes. This means if your company provides or meets the cost of electricity for an employee’s private mileage in an electric company car, there is no fuel benefit charge, unlike with traditional fuel.

VAT Recovery on Leasing and Charging

While outright purchase of a company car rarely allows for full VAT recovery (unless used exclusively for business with no private use), if you lease an electric company car, you can generally reclaim 50% of the VAT on the lease payments. If the car is used 100% for business, you can reclaim all of it.

Additionally, VAT can be reclaimed on the cost of charging the vehicle, particularly if charged at a business premises or public charging points (where the VAT rate is usually 20%). For home charging, if the electricity is on a domestic tariff, the VAT rate is 5%.

Workplace Charging Scheme Grants

To further support the transition, businesses can apply for the Workplace Charging Scheme (WCS) grant. This provides financial support towards the purchase and installation of electric vehicle charging infrastructure at your workplace, covering up to 75% of the costs (up to a maximum of £350 per socket, for up to 40 sockets).

Let Rogers Spencer Accountants Help

The UK government’s commitment to encouraging EV adoption is clearly reflected in these attractive tax incentives. Of course you will need to consider whether an electric car is right for your individual circumstances and factors such as the initial price of the vehicle and the range of the vehicle should be taken into account alongside the tax benefits. Tax laws are complex and can change.

We would always advise that you discuss this with your tax advisor to understand the specific implications for your limited company. Let us help! Give us a call on 0115 960 8412, or email us at advice@rogers-spencer.co.uk. Alternatively, you can fill out our contact form over on our Contact Us page.

Robin Maxwell

Robin Maxwell is a partner of Rogers Spencer and has been working with us since 2003. Robin specialises in Accountancy Solutions, Audits and Tax and VAT. Find out more about Robin here.