As the UK government seeks to lower carbon emissions, the tax benefits of having electric cars in your business can be significant. In this article, we look at the different tax and other cash benefits your business can enjoy by embracing electric vehicles (EVs).
Benefit-in-kind (BIK) tax
If you are an employee of your own company (i.e. a director who is taking a salary and working under a service contract), certain perks and benefits that you receive from the business are taxed. This includes medical insurance, child care vouchers, travel and entertainment expenses, and company cars.
This means that if the company has provided you with a company car, you (as the employee) need to pay tax on it. This is where it pays to be using an electric car.
The amount of tax you pay depends on a car’s CO2 emissions and list price (the recommended retail price of the car). The 2025/26 BIK rate for an EV is 3%. In comparison, the BIK rate for a car with a petrol engine goes up to 37%.
Benefit-in-kind company car tax rates
| C02 (g/km) | Electric mileage range | 2023/24 | 2024/25 | 2025/26 | 2026/27 | 2027/28 |
| 0 | – | 2% | 2% | 3% | 4% | 5% |
| 1 – 50 | 130 and over | 2% | 2% | 3% | 4% | 5% |
| 1 – 50 | 70 – 129 | 5% | 5% | 6% | 7% | 8% |
| 1 – 50 | 40 – 69 | 8% | 8% | 9% | 10% | 11% |
| 1 – 50 | 30 – 39 | 12% | 12% | 13% | 14% | 15% |
| 1 – 50 | less than 30 | 14% | 14% | 15% | 16% | 17% |
| 51 – 54 | 15% | 15% | 16% | 17% | 18% | |
| 55 – 59 | 16% | 16% | 17% | 18% | 19% | |
| 60 – 64 | 17% | 17% | 18% | 19% | 20% | |
| 65 – 69 | 18% | 18% | 19% | 20% | 21% | |
| 70 – 74 | 19% | 19% | 20% | 21% | 21% | |
| 75 – 79 | 20% | 20% | 21% | 21% | 21% | |
| 80 – 84 | 21% | 21% | 22% | 22% | 22% | |
| 85 – 89 | 22% | 22% | 23% | 23% | 23% | |
| 90 – 94 | 23% | 23% | 24% | 24% | 24% | |
| 95 – 99 | 24% | 24% | 25% | 25% | 25% | |
| 100 – 104 | 25% | 25% | 26% | 26% | 26% | |
| 105 – 109 | 26% | 26% | 27% | 27% | 27% | |
| 110 – 114 | 27% | 27% | 28% | 28% | 28% | |
| 115 – 119 | 28% | 28% | 29% | 29% | 29% | |
| 120 – 124 | 29% | 29% | 30% | 30% | 30% | |
| 125 – 129 | 30% | 30% | 31% | 31% | 31% | |
| 130 – 134 | 31% | 31% | 32% | 32% | 32% | |
| 135 – 139 | 32% | 32% | 33% | 33% | 33% | |
| 140 – 144 | 33% | 33% | 34% | 34% | 34% | |
| 145 – 149 | 34% | 34% | 35% | 35% | 35% | |
| 150 – 154 | 35% | 35% | 36% | 36% | 36% | |
| 155 – 159 | 36% | 36% | 37% | 37% | 37% | |
| 160 – 164 | 37% | 37% | 37% | 37% | 37% | |
| 165 – 169 | 37% | 37% | 37% | 37% | 37% | |
| 170 + | 37% | 37% | 37% | 37% | 37% |
As you can see, rates for EVs are due to increase year on year for the next five years, but the savings to be had by going electric are still significant.
Capital allowances: 100% first-year allowance
As a business owner, it’s important to know about capital allowances. This form of tax relief allows you to deduct the value of something (such as equipment and machinery) from business profits before you pay tax.
Some items qualify for a 100% first-year allowance, including electric cars. Provided that the car is new and unused, its entire cost (there’s no limit on the value) can be deducted from your profits.
Whilst you can claim capital allowance on a non-electric vehicle, the rate is not as generous (you qualify for the ‘main’ rate if you purchase a secondhand electric car).
- 18% ‘main’ rate
- 6% ‘special’ rate
The rate that applies to your vehicle will depend on when it was bought and how much CO2 it emits.
Clean air zone charges
To improve overall air quality, clean air zones (CAZs) have been introduced by local authorities across the UK in several cities including Bath, Birmingham, Bradford, Bristol, Glasgow, London, Portsmouth, Sheffield and Tyneside (Newcastle and Gateshead), with more zones being planned.
Different locations have different policies regarding charging drivers for going within them. However, those that do charge generally do not impose a fee if you drive a fully electric car.
This saving can be significant, especially if you regularly drive in London, where the Congestion Charge (£15 daily charge) and Ultra Low Emission Zone, also known as ULEZ (£12.50 daily charge) operate. As well as saving on the basic charges, drivers of electric cars don’t need to worry about penalty fees for late payment
However, it’s important to highlight that after 25 December 2025, electric cars need to pay the London Congestion Charge.
‘Fuel’
Since 1 March 2025, the advisory electric rate for electric cars is 7p per mile. This is the recommended reimbursement rate for employees who need to use their company car for business travel.
Simply put, as a business owner operating as a limited company and employed by the company, you can claim back the 7p (tax-free) from your company for every business mile you travel in your company car (other than commuting to and from home).
HMRC reviews the advisory rates for company car users every three months – on 1 March, 1 June, 1 September, and 1 December. You should check these regularly for any changes.
VAT
Whilst the company will need to pay VAT when purchasing the electric car, if it’s being used for business purposes only, it can claim 50% of this VAT back. Furthermore, under the same circumstances, the company can claim VAT for charging fees.
Vehicle tax
Finally, we have vehicle tax, also commonly referred to as road tax, car tax, or vehicle excise duty. This is an annual tax that applies to owners of vehicles driven or kept on public roads.
When you purchase a new car, it needs to be registered and you must pay vehicle tax based on the car’s C02 emissions. You then pay a different rate for the second year onwards. This can be paid monthly, every 6 months, or every 12 months.
Changes to vehicle tax rates for electric, zero and low-emission cars, vans and motorcycles were introduced on 1 April 2025 – they no longer qualify for free road tax. These changes apply to both new and existing vehicles, with the amount payable based on the type of vehicle and when it was registered.
Electric, zero or low-emission cars registered on or after 1 April 2025
You’ll pay the lowest first-year rate of vehicle tax set at £10 from 1 April 2025. From the second tax payment onwards, you’ll pay the standard rate of £195.
Electric, zero or low-emission cars registered between 1 April 2017 and 31 March 2025
You’ll pay the standard rate of £195.
Electric, zero or low-emission cars registered between 1 March 2001 and 31 March 2017
The tax rate payable for these vehicles is £20.
Hybrid and alternatively fuelled vehicles (AFVs)
The £10 annual discount for hybrid and alternatively fuelled vehicles has been removed. The rate you’ll pay depends on when the vehicle was first registered:
- Before 1 April 2017 – the rate depends on the vehicle’s CO2 emissions – check the current rates for hybrids and AFVs
- On or after 1 April 2017 – you’ll pay the standard rate of £195
Electric vans and electric motorcycles
The standard annual rate for light goods vehicles now applies to most electric vans, while the annual rate for the smallest engine size now applies to electric motorcycles and tricycles – check the rates for these vehicles
Additional rate (expensive car supplement)
In addition to the standard rate, new electric and zero-emission vehicles registered on or after 1 April 2025 with a list price of more than £40,000 are subject to the expensive car supplement. This is currently £425 per year. It applies for the first 5 years from the start of the second licence.
However, you don’t have to pay the supplement if you have a zero-emission vehicle and it was registered before 1 April 2025
Vehicle tax rates for cars registered on or after 1 April 2017
| CO2 emissions (g/km) | First-year payment for diesel cars (TC49) that meet the RDE2 standard, petrol cars (TC48), alternative fuel and zero-emission cars | All other diesel cars (TC49) |
Rates for second tax payment onwards
|
| 0 | £10 | £10 | £195 |
| 1 – 50 | £110 | £130 | £195 |
| 51 – 75 | £130 | £270 | £195 |
| 76 – 90 | £270 | £195 | £195 |
| 91 – 100 | £350 | £390 | £165 |
| 101 – 110 | £390 | £440 | £195 |
| 111 – 130 | £440 | £540 | £195 |
| 131 – 150 | £540 | £1360 | £195 |
| 151 – 170 | £1360 | £2190 | £195 |
| 171 – 190 | £2190 | £3300 | £195 |
| 191 – 225 | £3300 | £4680 | £195 |
| 226 – 255 | £4680 | £5490 | £195 |
| 255 + | £5490 | £5490 | £195 |
So, there you have it…
That’s how electric cars can provide tax benefits for your business. There are also additional benefits such as environmental, and savings on fuel and general maintenance (as an EV’s engine is essentially not as complicated as an internal combustion engine).
Thanks for reading this article. Please leave a comment if you have any questions and we’ll get back to you as soon as possible.
Please note that the information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While our aim is that the content is accurate and up to date, it should not be relied upon as a substitute for tailored advice from qualified professionals. We strongly recommend that you seek independent legal and tax advice specific to your circumstances before acting on any information contained in this article. We accept no responsibility or liability for any loss or damage that may result from your reliance on the information provided in this article. Use of the information contained in this article is entirely at your own risk.
Join The Discussion