Time for a new car? Own your own company? Should you buy or lease an electric vehicle through your company?
Electric vehicles can still offer significant tax advantages for limited company owners. But the rules have changed, and some of the benefits are becoming less generous.
Electric cars are no longer exempt from road tax, and company-car benefit rates are rising. Even so, a fully electric company car can attract a much smaller personal tax bill than a petrol or diesel equivalent.
So, is it worth considering? Yes. But let’s look at the numbers before ordering the car.
Price differences
An electric car can cost more than a comparable petrol or diesel model, but there is no reliable percentage difference that applies across the market.
Compare actual purchase prices or lease quotations for the cars you are considering. Discounts, finance terms, specification and mileage allowances can all affect the result.
The question is whether the tax benefits and running costs make the overall cost worthwhile.
Road tax
Electric vehicles have been subject to Vehicle Excise Duty, commonly called road tax, since 1 April 2025.
For 2026/27:
Newly registered fully electric cars pay £10 for their first year.
The standard annual rate after that is £200.
Electric cars registered between 1 April 2017 and 31 March 2025 also pay the £200 standard rate.
Fully electric cars registered from 1 April 2025 with an original list price above £50,000 also attract the expensive car supplement. This is currently £440 a year, payable for five years from the second year. At current rates, that means an annual bill of £640 during those years. The list price before discounts determines whether the supplement applies.
Looking further ahead, the government plans to introduce an additional mileage-based Electric Vehicle Excise Duty from 1 April 2028, initially at 3p per mile for fully electric cars. This should be included when considering longer-term ownership costs, although it is not a charge you pay today.
Capital allowances
If your limited company buys a new and unused fully electric car, it can currently claim a 100% first-year allowance, deducting the qualifying cost from its taxable profits.
For companies, this relief is currently available for qualifying expenditure incurred up to 31 March 2027.
For example, a qualifying £50,000 purchase could reduce the company’s Corporation Tax bill by:
£9,500, if the whole deduction saves tax at 19%.
£12,500, if the whole deduction saves tax at 25%.
The actual saving depends on the company’s profits and circumstances. Marginal relief can affect the calculation, and having insufficient taxable profits can affect when the benefit is received.
Buying second-hand
A second-hand electric car does not qualify for the 100% first-year allowance. Instead, it normally qualifies for main-rate writing-down allowances.
For companies, the main rate reduced from 18% to 14% from 1 April 2026, with a blended rate applying to accounting periods that straddle the change.
The allowance is calculated on the remaining tax balance each year. It is a deduction from taxable profits, rather than a direct reduction of the same amount from the tax bill.
Also remember that selling the car later affects the capital allowances calculation and can create a taxable balancing charge. The initial tax saving needs to be considered alongside the eventual disposal.
Value Added Tax
Buying an electric car does not automatically allow your company to reclaim the VAT.
For a normal company car available for private use, purchase VAT is generally blocked. An exception can apply where the car is used exclusively for business and is not available for private use. Simply choosing not to use it privately is insufficient. Other exceptions apply to particular activities, such as qualifying taxi and driving-school businesses.
Leasing is different. A VAT-registered business can normally reclaim 50% of the VAT on qualifying car rental payments where there is private use, subject to the usual VAT recovery rules.
That means 50% of the VAT, rather than 50% of the whole payment. It applies to petrol and diesel cars as well as EVs.
Benefit-in-kind tax
This remains one of the strongest tax arguments for an electric company car.
When your company provides a car that is available for private use, including ordinary commuting, you will normally pay tax on a benefit-in-kind, or BIK. The company also normally pays Class 1A National Insurance on the benefit.
The taxable benefit is broadly calculated using the car’s original list price, including relevant accessories, multiplied by its company-car tax percentage.
It is generally based on the original list price even if the company buys the car second-hand or negotiates a discount.
For a fully electric car, the BIK percentages are:
| Tax year | BIK percentage |
|---|---|
| 2026/27 | 4% |
| 2027/28 | 5% |
| 2028/29 | 7% |
| 2029/30 | 9% |
These increases matter if you are committing to a car for several years.
Director’s tax on the benefit
For 2026/27, a fully electric car with a £50,000 list price produces an annual taxable benefit of:
£50,000 × 4% = £2,000
You pay Income Tax on that benefit. Assuming the whole benefit falls within the stated tax band, the annual personal tax would be:
| Income Tax rate | Annual tax |
|---|---|
| 20% | £400 |
| 40% | £800 |
| 45% | £900 |
These are illustrative calculations using rates applicable in England, Wales and Northern Ireland. The actual bill depends on your total income, allowances and tax bands.
Scottish taxpayers have different Income Tax rates. For example, if the whole £2,000 benefit is taxed at the Scottish higher rate of 42%, the annual tax is £840.
Employer’s National Insurance
The Class 1A National Insurance rate for 2026/27 is 15%.
On the £2,000 electric-car benefit above, the company would therefore pay:
£2,000 × 15% = £300 a year.
Making fair comparisons
Here is an illustration comparing two company cars with the same £50,000 list price. The petrol car is assumed to have CO₂ emissions of 181g/km, giving it a 37% BIK rate for 2026/27.
| Annual amount, 2026/27 | Fully electric car | Petrol car |
|---|---|---|
| List price | £50,000 | £50,000 |
| BIK percentage | 4% | 37% |
| Taxable benefit | £2,000 | £18,500 |
| Director’s tax at 20% | £400 | £3,700 |
| Director’s tax at 40% | £800 | £7,400 |
| Director’s tax at 45% | £900 | £8,325 |
| Company’s Class 1A NIC at 15% | £300 | £2,775 |
This assumes a full year’s availability, no employee contributions and the whole benefit taxed at the stated rate. Scottish Income Tax rates differ.
The difference is substantial. But this table compares the tax on providing the cars; it does not show their total ownership costs.
For that, you need to include the actual purchase or lease price, finance costs, insurance, charging or fuel, maintenance, road tax and depreciation.
Charging arrangements matter too. Work out what charging will cost using the tariffs and locations you expect to use.
Residual and resale values
Do not base the decision on an assumption that an electric car will retain a fixed percentage of its value, or automatically hold its value better than a petrol or diesel car.
Use current valuations for the specific model, age and mileage you are considering, and allow for uncertainty.
If you buy the car, your company carries the resale-value risk. With a straightforward contract-hire agreement, the leasing company generally carries that risk, subject to you meeting the agreement’s mileage, condition and other terms.
Financing options
Your options may include outright purchase, a business loan, hire purchase or leasing.
The tax treatment depends on the agreement. An outright purchase or qualifying hire-purchase arrangement may allow the company to claim capital allowances. A straightforward lease normally gives the company relief through rental costs instead.
Look beyond the monthly payment. Compare the initial payment, total payable, interest or finance charges, VAT treatment, mileage limits, maintenance terms and any final payment.
Leasing also does not remove the company-car benefit charge where the car is available for private use.
So, should you put an electric car through your company?
It can still be a very tax-efficient option. But a low tax bill alone does not make a car affordable.
The right answer depends on the car, your company’s profits and cash flow, your personal tax position, how you will charge it and how long you intend to keep it.
Before you commit, get the full calculation done for the actual car and finance deal you are considering.
The Acumenica team can help you compare the options and understand the impact on both your company and your personal tax bill. For a no-obligation, confidential chat, visit our Contact Us page or call 03330 166559.
Updated 29 October 2026. Unless stated otherwise, examples use 2026/27 rates and relate to fully electric cars provided by limited companies.
