If you’re thinking of providing employees with electric cars or purchasing one yourself, you’ll want to know exactly how much you could save. At Rickard Luckin, we’re here to help. This blog provides an overview of the main tax benefits associated with purchasing an electric car through your company, along with an example of the potential savings you could achieve.

Capital Allowances

Most cars purchased by companies will be eligible for tax relief on a writing-down basis at either the main rate (18%) or the special rate (6%). However, for new and unused electric cars with CO2 emissions of 0g/km, there is a special enhanced capital allowance of 100% available. This effectively gives full tax relief for the purchase in the year of purchase.

If the car is disposed of, it may result in a high balancing charge due to the electric vehicle pool having a zero balance. It is therefore crucial that you seek advice before disposing of your electric vehicle. A first-year allowance of 100% is also available for expenditure incurred on electric charge-point equipment. This first-year allowance has been extended previously but is currently due to end on 31st March 2026.

Claiming VAT

HMRC does not offer special VAT breaks for electric cars and hybrids. The VAT can only be recovered by a VAT-registered business on the purchase of the car if there is no private use at all (i.e. a pool car). That includes home-to-work journeys. So, you can only reclaim the VAT on the purchase of the car if it is for 100% business use only.

If your business leases the car, then you can recover 50% of the VAT on the hire charges and all the VAT on any additional charges, such as maintenance or roadside assistance.

Claiming running costs

Running costs, insurance, road tax, servicing, etc. for electric cars provided to employees are fully deductible for Corporation tax.

Benefit in Kind

The Benefit in Kind (BIK) tax for Zero Emission Vehicles in 2025/26 is 3% of the car’s P11D value (broadly the manufacturer’s list price plus optional extras) and is due to increase by 1% annually until 2029. The rates will still remain much lower than for internal combustion engine (ICE) and hybrid vehicles. Similar increases will also be made to the benefits-in-kind for hybrid cars, where the appropriate percentage depends on the electric range of the vehicle.

Employees are subject to income tax on the value of the benefit at their marginal rate, and the company is chargeable to National Insurance Class 1A on the benefit value at a rate of 15%. This cost is an allowable cost for Corporation Tax.

Exempt benefits

A number of benefits connected to company cars do not attract employment taxes, but still qualify for Corporation tax relief, these include:

• Reimbursed business mileage at 7p per mile
• The cost of charging an electric vehicle at work
• The cost of installing a vehicle charging point at the employee’s home (only if a company car)

What would an electric car cost my company?

What does all this mean for the cost of buying an electric car this tax year? The example below is based on a Tesla Model 3, with a purchase value of £50,000 that is registered after 5 April 2020 by a higher-rate tax-paying employee.

If you’re self-employed or the director of a UK company and want to take advantage of the tax relief on electric vehicles and electric vans, we can help. While the tax relief on zero-emission vehicles is very attractive for small businesses, it is essential to weigh all your options to find the best solution for you and your business.

As ever, we are here to support our clients, and if you would like to discuss any of the above in more detail please contact Rob Thresher or liaise with your regular Rickard Luckin contact.