- Introduction
This article summarises the principal tax benefits and considerations for a director-owner company providing a wholly electric vehicle (EV) as a company car in the 2025/26 tax year. The analysis covers capital allowances, benefit-in-kind (BiK) taxation, reimbursement of charging costs, VAT implications, salary sacrifice arrangements, and other relevant factors.
- Capital Allowances
- 100% First-Year Allowance (FYA):
Companies purchasing new and unused zero-emission cars (wholly electric vehicles) can claim a 100% FYA for expenditure incurred up to 31 March 2026 (Corporation Tax) or 5 April 2026 (Income Tax). This allows the entire cost of the vehicle to be deducted from taxable profits in the year of purchase, providing a significant cash flow benefit.- No upper value limit applies.
- The car must be new and unused.
- Leased cars do not qualify for FYA, but lease payments are deductible as business expenses.
- The 100% FYA also applies to the installation of EV charging points at business premises (expenditure incurred before 31 March 2026 for corporation tax purposes).
- Second-hand Electric Cars:
These do not qualify for the 100% FYA but can be claimed under the main rate writing down allowance (18% per annum).
- Benefit-in-Kind (BiK) Taxation
- BiK Rate for 2025/26:
For wholly electric company cars (0g/km CO2), the BiK rate is 3% of the car’s list price for the 2025/26 tax year. This remains substantially lower than for petrol or diesel vehicles. - Calculation Example:
For a £40,000 electric car, the BiK value is £1,200 (3% of £40,000). For a higher-rate taxpayer (40%), the annual tax cost is £480. - Class 1A National Insurance Contributions (NIC):
The company must pay Class 1A NIC at 15% on the BiK value. In the above example, this would be £180. - Additional Benefits:
The BiK charge covers not only the provision of the car but also associated costs such as insurance, maintenance, and installation of a charging point at work or at the director’s home, provided these are connected to the company car. - No Fuel Benefit Charge:
Electricity is not classified as fuel for company car tax purposes, so there is no separate fuel benefit charge for charging an electric company car, whether at home or at work.
- Reimbursement of Charging Costs
- At Work:
If the company provides charging facilities at or near the workplace, there is no taxable benefit for the director or employee, provided the facilities are available to all employees generally. - At Home:
If the director charges the company car at home and the company reimburses the electricity cost, this reimbursement is not taxable as a benefit-in-kind, provided it is solely for the company car. - Mileage Reimbursement:
Employers can reimburse business mileage in electric company cars at the HMRC Advisory Electric Rate (AER), which is 7p per mile from 1 March 2025, with no tax or NIC implications.
- VAT Considerations
- VAT on the purchase of an electric car is only recoverable if the car is used exclusively for business purposes, which is rare in practice.
- For leased cars, 50% of the VAT on lease payments can be reclaimed, reflecting the private use element.
- VAT on electricity for charging at home is not recoverable by the company, but VAT on workplace charging may be recoverable in proportion to business use.
- Salary Sacrifice Arrangements
- Electric company cars are exempt from the optional remuneration (salary sacrifice) rules that restrict tax savings for other benefits. Directors can sacrifice salary in exchange for an electric company car, and the BiK is still calculated using the low percentage of the list price, not the salary foregone.
- Other Considerations
- No Annual Investment Allowance (AIA):
Cars do not qualify for AIA, but the 100% FYA for new electric cars is a separate, more generous relief. - Plug-in Grants:
Some electric vehicles may be eligible for a government grant, which is deducted from the purchase price at source. - Reporting and Compliance:
The company must report the BiK on form P11D and pay Class 1A NIC via form P11D(b). From April 2026, payrolling of BiK will become mandatory, but for 2025/26, the existing reporting regime applies. - Corporation Tax Deduction:
The company receives a corporation tax deduction for the cost of providing the car (via capital allowances) and for the employer’s NIC paid on the BiK.
- Summary Table of Key Tax Benefits
| Benefit | Electric Company Car (New, 0g/km) | Petrol/Diesel Car (High Emissions) |
| First-Year Allowance | 100% of cost | Not available |
| BiK Rate (2025/26) | 3% | Up to 37% |
| Fuel Benefit Charge | None | Yes |
| VAT Recovery | Only if 100% business use | Same |
| Salary Sacrifice | Full tax/NIC savings | Restricted |
- Conclusion
Providing a new electric company car offers substantial tax advantages for director-owner companies in 2025/26, including a 100% first-year capital allowance, a very low benefit-in-kind charge at 3%, and no fuel benefit charge. These incentives, combined with lower running costs and the government’s push towards zero-emission vehicles, make electric company cars a highly tax-efficient choice for both the company and the director.
Action Points:
- Consider timing of purchase to maximise 100% FYA before 31 March 2026.
- Review BiK implications for directors and employees.
- Assess VAT recovery potential based on business/private use.
- Explore salary sacrifice arrangements for further tax efficiency.
