Tax reliefs associated with buying an electric vehicle through your Limited Company

If you purchase a brand new fully electric car through your limited company, you can claim a 100% First Year Allowance (FYA) against your Corporation Tax bill. This also applies to charging stations installed at an employee’s home address. 

The Autumn Budget 2024 proposed extending FYAs on zero-emission cars from 31 March 2025 to 31 March 2026 for Corporation Tax purposes. 

FYAs apply where the company owns the vehicle outright or via hire purchase. They are not available on leased vehicles (including PCP-style agreements). When the vehicle is sold, the company will pay Corporation Tax on any sale proceeds. 

Commercial vehicles continue to qualify for 100% allowances under the Annual Investment Allowance. 

If the vehicle is leased, monthly rentals are treated as an allowable business expense, reducing taxable profits and therefore Corporation Tax. 

Where the vehicle is acquired under a hire purchase agreement, the company benefits from the 100% FYA and can also deduct the interest element of the monthly payments for Corporation Tax purposes. 

Where an electric car is purchased outright or via hire purchase, VAT on the purchase price can only be reclaimed if the vehicle is used exclusively for business purposes. Commuting does not count as business use. 

For leased electric cars, 50% of the VAT on lease payments can be reclaimed. 

A benefit-in-kind arises where there is any personal use of a company car. For fully electric cars, the BIK rates are: 

• 2% of the list price for 2024–25 

• 3% for 2025–26 

• 4% for 2026–27 

• 5% for 2027–28 

These rates remain significantly lower than for petrol and diesel cars, which can be as high as 37%. 

Tax and NI on the BIK: 

• Employer: List price × BIK rate × 15% (employer’s NIC) 

• Employee: List price × BIK rate × employee’s income tax rate 

The installation of a home charging point for a company car is not treated as a taxable benefit. 

From April 2025, electric cars will no longer be exempt from the standard annual VED rate and will be treated the same as petrol and diesel vehicles. The expensive car supplement (ECS) continues to apply to vehicles originally costing more than £40,000. 

Budget update (new measures): 

• The ECS threshold for battery electric cars will increase from £40,000 to £50,000 from April 2026. 

• The ECS is paid for five years, starting one year after first registration. For an EV purchased in 2025–26, the total ECS payable over five years is £2,370 (based on current rates). 

• The electric car grant has been expanded and will run from 2025–26 to 2029–30, providing additional support for EV purchases (exact grant levels will depend on scheme criteria). 

A major policy change is the introduction of a new mileage-based tax on electric vehicles from April 2028, in addition to VED. 

The charge will be: 

• £0.03 per mile for battery electric cars 

• £0.015 per mile for plug-in hybrids 

• Rates will increase each year with CPI 

Based on average annual mileage of 8,500 miles, a typical battery electric car driver will pay around £255 in 2028–29. This is approximately half the level of fuel duty paid per mile by petrol and diesel drivers. 

The Government expects this new charge to raise £1.1 billion in 2028–29, rising to £1.9 billion in 2030–31, though revenues may vary depending on EV uptake. 

Electricity provided for company car drivers is not treated as a BIK where the journey is for business use. 

Employers may either: 

• reimburse charging costs claimed by employees, or 

• pay for all charging and recover the cost of 

•  private mileage (including commuting) through payroll deduction. 

Electricity costs are fully tax-deductible for the company.

Several grants remain available, including: 

• EV infrastructure grant for staff and fleets (for SMEs) – contributes towards the cost of infrastructure works required to install multiple charge points. 

• Workplace Charging Scheme grant – provides support for installing charge points at business premises.