Electric Company Cars: Corporation Tax 2025
Buying an electric vehicle (EV) through your limited company is one of the most tax-efficient perks available to UK directors in 2025/26. You get 100% capital allowances in year one, a Benefit in Kind (BIK) rate of just 2%, and significant corporation tax savings — all while driving a brand-new electric car.
But the rules are specific. Not every electric vehicle qualifies for the full relief, and there are traps around personal use, charging costs, and salary sacrifice schemes. This guide breaks down exactly how electric company cars interact with corporation tax, what you can claim, and how to report it on your CT600.
Why Electric Vehicles Are So Tax-Efficient
The UK government has deliberately created generous tax incentives to encourage businesses to switch to electric vehicles. Here's the headline summary for 2025/26:
| Tax | Electric vehicle (0g/km CO₂) | Petrol/diesel equivalent |
|---|---|---|
| Capital allowances | 100% first-year allowance (FYA) | 6% or 18% writing-down allowance |
| Benefit in Kind rate | 2% | 22%-37% depending on emissions |
| Class 1A employer NICs | On BIK value (very low) | On BIK value (much higher) |
| VAT on purchase | 20% (cannot usually reclaim if personal use) | 20% (same restriction) |
| Road tax (VED) | £0 for first year (changing from April 2025) | Based on emissions |
The combination of 100% first-year allowance and 2% BIK makes electric company cars dramatically cheaper than petrol or diesel alternatives — for both the company and the director.
Capital Allowances: 100% First-Year Allowance
When your company buys a new, unused electric car with zero CO₂ emissions, it qualifies for 100% first-year allowance (FYA). This means the entire purchase price is deducted from your taxable profits in the year of purchase.
How it works
Your company buys a new electric car for £40,000:
- Year 1 capital allowance: £40,000 (100% FYA)
- Corporation tax saving at 25%: £40,000 × 25% = £10,000
- Corporation tax saving at 19%: £40,000 × 19% = £7,600
- Effective cost of the car (25% rate): £40,000 − £10,000 = £30,000
Compare this to a petrol car costing £40,000:
- Year 1 capital allowance: £40,000 × 18% = £7,200 (main pool WDA)
- Corporation tax saving in year 1: £7,200 × 25% = £1,800
- Remaining £32,800 is written down over many years at 18% per annum
The EV gives you the entire tax relief upfront, improving cash flow dramatically.
Conditions for 100% FYA
- The vehicle must be brand new and unused — second-hand EVs don't qualify for 100% FYA
- It must produce zero CO₂ emissions — pure electric only (not hybrid)
- The allowance is available for cars purchased before April 2025 under current legislation, but the government has extended 100% FYA for zero-emission cars and this is expected to continue — always check the latest Budget announcements
- There is no upper limit on the cost of the vehicle
Second-hand electric vehicles
If your company buys a used electric car, it goes into the main pool and qualifies for the standard 18% writing-down allowance — the same as any other car with CO₂ emissions of 50g/km or less. Still better than the 6% special rate pool for high-emission vehicles, but you lose the valuable 100% upfront deduction.
Benefit in Kind (BIK): The 2% Rate
When a company provides a car for a director or employee's personal use, a Benefit in Kind arises. The BIK is a taxable benefit — the director pays income tax on it, and the company pays Class 1A NICs.
For electric vehicles, the BIK rate for 2025/26 is just 2% of the car's list price. This is the lowest BIK rate available for any type of company car.
How BIK is calculated
List price of car: £45,000 (P11D value including options and delivery but excluding first-year registration fee and road tax)
- BIK value: £45,000 × 2% = £900
- Director's income tax (basic rate 20%): £900 × 20% = £180 per year (£15/month)
- Director's income tax (higher rate 40%): £900 × 40% = £360 per year (£30/month)
- Company's Class 1A NICs: £900 × 15% = £135 per year
Compare this to a petrol car (let's say 130g/km CO₂, BIK rate 33%):
- BIK value: £45,000 × 33% = £14,850
- Director's income tax (basic rate): £14,850 × 20% = £2,970 per year
- Company's Class 1A NICs: £14,850 × 15% = £2,227.50 per year
The electric car BIK costs the director £180 vs £2,970 per year. That's a saving of £2,790 annually — or £232 per month — just on the BIK tax.
Future BIK rates
The government has confirmed EV BIK rates for the coming years:
| Tax year | Zero-emission BIK rate |
|---|---|
| 2025/26 | 2% |
| 2026/27 | 2% |
| 2027/28 | 2% |
| 2028/29 | 7% |
| 2029/30 | 9% |
The 2% rate is guaranteed through 2027/28. Even at 7% from 2028/29, electric cars remain significantly cheaper than petrol or diesel alternatives.
Running Costs and Corporation Tax
Beyond the purchase price, your company can claim corporation tax relief on various running costs:
Electricity charging
- Charging at company premises: The electricity cost is a normal business expense — fully deductible against corporation tax
- Charging at home: If the company reimburses your home electricity for charging, this is tax-free for the employee/director (up to HMRC-approved rates) and deductible for the company
- Public charging: Business miles charged at public chargers are a deductible expense
Advisory fuel rate for EVs
HMRC publishes an Advisory Electricity Rate (AER) for electric company cars. For 2025/26, this is 7p per mile. This is the rate at which:
- The company can reimburse the director for business miles driven in a company electric car (if the director pays for their own electricity)
- The director can repay the company for private miles (if the company pays for charging)
Insurance, maintenance, and road tax
All running costs paid by the company are deductible for corporation tax purposes:
- Insurance premiums
- Servicing and maintenance (note: EVs typically have lower maintenance costs)
- Road tax (VED) — zero for EVs registered before April 2025; from April 2025, EVs pay the standard rate
- Breakdown cover
- Tyres and repairs
Leasing vs. buying
If your company leases rather than buys the EV:
- Lease rental payments are deductible as a business expense
- For cars with CO₂ emissions over 50g/km, a 15% disallowance applies to lease rentals — but this doesn't apply to zero-emission vehicles
- You don't get the 100% FYA (since the company doesn't own the car), but the lease payments provide ongoing tax relief
- Personal contract hire (PCH) or business contract hire (BCH) arrangements qualify for relief on the rental element
Practical Example: Total Tax Saving
Let's put it all together. Company: single-director consultancy, taxable profits of £80,000 before car purchase. Car: new Tesla Model 3 Long Range, list price £45,000.
Year 1
| Item | Amount | CT impact |
|---|---|---|
| 100% FYA on purchase | £45,000 deduction | −£11,250 CT (at 25%) |
| Electricity and running costs | £2,500 deduction | −£625 CT |
| Class 1A NICs (deductible) | £135 deduction | −£34 CT |
| Total CT saving | £11,909 | |
| Director BIK tax (basic rate) | £180 | Personal cost |
Effective cost of owning and running the car in year 1: £45,000 + £2,500 + £135 − £11,909 = £35,726
The director gets a brand-new £45,000 car for an effective company cost of £35,726 in year one, and pays just £180 in personal tax.
Ongoing years
After year 1, there are no further capital allowances (the full 100% was claimed upfront). Running costs continue to be deductible:
| Annual item | Amount | CT saving (25%) |
|---|---|---|
| Electricity | £1,500 | £375 |
| Insurance | £800 | £200 |
| Maintenance | £300 | £75 |
| Class 1A NICs | £135 | £34 |
| Total annual CT saving | £684 | |
| Director annual BIK tax | £180 | — |
Selling or Disposing of the Company Car
When the company eventually sells or disposes of the electric car, a balancing charge arises. Since 100% FYA was claimed, the entire proceeds are taxable:
- Sale price: £25,000 (after 3 years)
- Balancing charge: £25,000 (added back to taxable profits)
- Corporation tax on disposal: £25,000 × 25% = £6,250
Net capital allowance benefit: £10,000 CT saving upfront minus £6,250 CT on disposal = £3,750 net saving, plus the time value of having the £10,000 relief three years earlier.
Even with the balancing charge, the overall tax position is significantly better than a petrol/diesel car.
How to Report on Your CT600
Capital allowances
The 100% first-year allowance is claimed in your capital allowances computation, which feeds into the CT600. The car goes into a single asset pool for FYA purposes. Key boxes:
- Box 685: Total capital allowances claimed (includes the FYA)
- The FYA is included in your iXBRL accounts computation note
BIK reporting
BIK is reported through payroll (P11D or payrolled benefits), not on the CT600 directly. However:
- Class 1A NICs on the BIK are due by 22 July following the tax year
- The Class 1A NICs cost is a deductible expense for corporation tax
- Taxpipe's CT600 filing handles the capital allowance computation automatically
How Taxpipe Helps
When you file your CT600 with Taxpipe, you enter your capital expenditure including any electric vehicle purchases. Taxpipe:
- Identifies qualifying expenditure for 100% first-year allowances
- Calculates the capital allowance deduction
- Applies marginal relief where your profits fall between £50,000 and £250,000
- Generates compliant iXBRL accounts and submits to HMRC
Check our pricing — filing your CT600 with full capital allowance computations starts from just £69 + VAT.
FAQ
Can my company buy an electric car and claim 100% tax relief?
Yes, if the car is brand new (not second-hand), produces zero CO₂ emissions, and is purchased by the company. The 100% first-year allowance means the full purchase price is deducted from taxable profits in year one. There's no limit on the vehicle cost.
What is the BIK rate for electric company cars in 2025/26?
2% of the car's P11D value (list price including options). This is the lowest BIK rate for any company car. A £45,000 electric car generates a BIK of just £900 per year, costing a basic-rate taxpayer £180 in income tax annually.
Does the 100% allowance apply to second-hand electric cars?
No. The 100% first-year allowance is only available for new, unused vehicles. Second-hand electric cars go into the main capital allowances pool and qualify for 18% writing-down allowance per year — still better than high-emission vehicles (6%) but not the full upfront deduction.
Can I claim the 100% allowance on a plug-in hybrid?
No. The 100% FYA applies only to vehicles with zero CO₂ emissions — pure electric vehicles. Plug-in hybrids (PHEVs) have some CO₂ emissions and go into the main pool (18% WDA) if emissions are 50g/km or less, or the special rate pool (6% WDA) if above 50g/km.
Is it better to buy or lease an electric car through my company?
Both have tax advantages. Buying gives you the 100% FYA — a massive upfront deduction. Leasing provides ongoing deductions through lease payments with no 15% disallowance (since EVs have zero emissions). Buying is typically better if you have sufficient profits to absorb the full deduction in year one. Leasing may suit companies wanting to preserve cash.
What happens when I sell the electric company car?
A balancing charge arises — the sale proceeds are added back to taxable profits and you pay corporation tax on them. Since you claimed 100% FYA on the full cost, the entire sale price is taxable. However, the timing benefit (full relief upfront, tax on disposal years later) still makes this favourable overall.