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

In this article we outline the key tax reliefs available to Limited Companies who are considering purchasing an Electric Vehicle (EV). The number of electric cars is rising, and there has been an increase of 41.6% in the number of vehicles registered during January 2025, according to the Society of Motor Manufacturers and Traders.

New company car benefit in kind rates came into effect from April 2020 and resulted in the rate of company car tax available on fully Electric Vehicles reducing from 16% to 0%. This increased to 1% in the 2020-2021 tax year, and is currently 2%. This means that businesses can offer EVs to employees at a lower cost than petrol or diesel equivalents due to the generous tax benefits, resulting in major financial benefits to the employee and the company whilst also helping businesses to reduce their impact on the environment.

In addition to pledging to reduce emissions as part of the Paris Agreement, the UK has committed to a “net zero” target for greenhouse gasses by 2050. To achieve this, the Government needs to tackle emissions from across the transport industry, which is now the highest emitting sector in the UK. Targeting corporate fleets by offering tax incentives has the potential to displace the amount of fossil-driven miles, making “net-zero” targets more achievable.

1. Capital Allowances

If you purchase a brand new fully electric car through your limited company, you can claim a First Year Allowance of 100% against your corporation tax bill. 100% First-year allowances are also applicable to charging stations being fitted at an employee’s home. It was proposed in Autumn Budget 2024 that the availability of 100% First Year Allowances (FYAs) on zero-emission cars would be extended from 31 March 2025 until 31 March 2026 for Corporation Tax purposes.

This capital allowance can be claimed if the vehicle is purchased outright by the company, or via a hire purchase agreement but not if the vehicle is leased under an agreement whereby the company doesn’t actually own the vehicle (including PCP agreements).

Something to consider is that when the vehicle is sold, the company will pay corporation tax on any sale proceeds.

Traditionally, cars do not qualify for 100% allowances, and instead qualify for a writing down allowance each year. This is therefore a tax advantage.

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

2. Corporation Tax and Lease payments

If the vehicle is leased by the Company, the monthly rentals will be included in the profit and loss account as an expense, which reduces the company’s profit and corporation tax for the year.

3. Corporation Tax and Hire Purchase 

If the vehicle is obtained under a Hire Purchase (HP) agreement, not only will the company benefit from the 100% first year allowance, but will also make corporation tax savings on the interest on the monthly payments.

4. VAT

When a company obtains an electric vehicle via outright purchase or HP, in order to reclaim any VAT on the purchase price of the car, it has to be driven for business use only. Commuting from home to a workplace is not business use.

If the car is leased, the company can reclaim 50% of the VAT from the lease payments.

5. Benefit-in-kind

As with any company car, if there is personal usage then a benefit-in-kind (BIK)will arise. The BIK rate for a fully electric car has been set at 3% of the vehicles list price.

• For pure electric cars with no CO₂ emissions, the rates are:

• 2% of the list price for 2024-25.
• 3% of the list price for 2025-26.
• 4% of the list price for 2026-27.
• 5% of the list price for 2027-28.

This is a significant saving on the BIK for petrol and diesel cars which can be up to 37% depending on their emissions.

Tax and NI on benefits-in-kind are payable by the company and/or the employee.

• The company will pay: List price of the car x 3% (current BIK rate for electric cars) x 15% (Employers national insurance rate).
• The employee will pay: List price of the car x 3% (current BIK rate for electric cars) x employee’s income tax rate.

The installation of a charging point at an employee’s home address associated with the provision of a company car is not considered a taxable benefit-in-kind.

6. Vehicle Excise Duty (VED) changes: April 2025

Changes to car tax or Vehicle Excise Duty (VED) will come into force in April 2025 for drivers of electric, zero or low emissions vehicles – with some cars now requiring payment of up to £620 in tax.

Introduced by the Government in April 2017, the expensive car supplement is an additional fee levied on cars that cost more than £40,000 new. It’s part of the VED, or ‘road tax’, that car owners pay annually. Currently, electric cars are exempt from the £190 flat rate (£195 after 1 April 2025) that is due on most newer cars each year. However, this is set to change from 1 April 2025 when hybrid and electric car owners will have to pay the same rate as drivers of petrol and diesel cars.

7. Electricity expense

Electricity provided for company car drivers does not count as a BIK if the journey is business use. Drivers can either pay up front for home and public charging and reclaim the costs, or the employer can pay for everything, and the driver can log private mileage (including commuting) and the costs can be deducted from their salary.

The electricity expense is fully tax deductible for the company.

8. Grants available

As well as the above tax benefits of purchasing an electric car through your limited company, there are also grants available between £500 and £25,000.

There is support available for small and medium-sized businesses, known as the EV infrastructure grant for staff and fleets.

The EV infrastructure grant helps with any costs to do with building and installation work that’s needed to install multiple charge point sockets, such as the installation of wiring and posts.

There is also a workplace charging scheme grant to provide a grant for installing charging points at a business address and can be applied for here.