Why Electric Company Cars Matter: Discover How They Can Benefit Your Business

As a business owner, you’re always looking for ways to reduce costs, improve your company’s environmental impact, and stay ahead of changing regulations. Switching to electric company cars can help you achieve all three. Not only do electric vehicles (EVs) offer savings through generous tax reliefs and lower running costs, but they also demonstrate your commitment to sustainability, a key factor for many customers and employees today.

This factsheet explains the important tax benefits, rules, and upcoming changes around electric company cars and charging points. Whether you’re considering buying your first electric vehicle or already have one on your fleet, understanding these details will help you make informed decisions and maximise your savings.

Company Cars (Electric) – What Business Owners Need to Know

Capital Allowances: Tax Relief on Buying Electric Cars

• New electric cars with zero CO2 emissions bought by your company qualify for 100% First Year Capital Allowance (FYA). This means you can deduct the full cost from your profits in the first year, reducing your corporation tax bill significantly.
  Note: This relief is available for cars bought new and unused, and the government has extended this benefit until 31 March 2026 for corporation tax purposes.
• If you don’t claim the full 100% allowance, the remaining cost goes into the company’s main pool and you can claim an 18% Writing Down Allowance (WDA) each year instead.
• Second-hand electric cars with zero emissions and hybrid cars (new or used) that emit 50g/km CO2 or less qualify for 18% WDAs annually.
• Tip: Leasing an electric car does not qualify for the 100% FYA, but lease payments can be deducted as business expenses.

Electric Vehicle Charging Points

• Installing electric vehicle charging points at your business or employees’ homes qualifies for 100% First Year Allowance, letting you claim the full cost against your profits in the year of purchase.
• This relief is also extended until 31 March 2026 for corporation tax purposes.

Benefit In Kind (BIK) – Tax on Company Cars Provided to Employees

• Employees using electric company cars pay tax based on the car’s list price and CO2 emissions.
• For pure electric cars with zero emissions, the BIK rates are low but will increase gradually over the next few years:
• 3% for 2025-26
• 4% for 2026-27
• 5% for 2027-28
• The car’s list price includes the battery cost.
• Tip: If employees pay for their own fuel, normal mileage rates apply; if the company pays for electricity, a special mileage rate for electric cars applies (currently 7p per mile and reviewed quarterly).

VAT on Electric Cars and Charging

• VAT cannot be reclaimed on electric cars unless they are used exclusively for business (no private use).
• For leased cars, you can recover 50% of the VAT on lease payments.
• VAT can be fully reclaimed on commercial electric vehicles (e.g., vans) with no private use.
• VAT on running costs like repairs and vehicle excise duty can be reclaimed where applicable.
• Electricity supplied at public charging points is standard rated for VAT (20%).
• VAT recovery on electricity used for charging at home is generally only available to sole traders and partners, not employees or directors, but this is under review.
• Employers providing workplace charging points can recover VAT but must charge VAT on private use electricity supplied to employees.

Vehicle Excise Duty (VED) – Road Tax for Electric Cars

• From 1 April 2025, electric cars will pay road tax just like petrol/diesel cars.
• New zero-emission cars registered on or after 1 April 2025 pay a low first-year rate of £10, then £195 annually from the second year onwards.
• Zero-emission cars registered between 2017 and 2025 pay £195 annually.
• Expensive electric cars (list price over £40,000) pay an additional supplement of £425 per year for the first five years after the first tax year, making total tax £620 annually.
• Tip: This change means electric car owners should budget for road tax costs starting in 2025.

Key Terms Explained

• First Year Allowance (FYA): A tax relief that lets your company deduct the full cost of qualifying assets (like new electric cars or charging points) from taxable profits in the year you buy them.
• Writing Down Allowance (WDA): A way to claim tax relief gradually on assets that don’t qualify for full upfront relief, spreading the cost over several years.
• Benefit In Kind (BIK): A tax employees pay when they receive benefits from their employer, such as a company car. The amount depends on the car’s value and emissions.
• Vehicle Excise Duty (VED): Also known as road tax, a yearly charge for vehicles on public roads, now applicable to electric cars from April 2025.
• VAT Recovery: The ability of a business to reclaim VAT paid on purchases related to business use.

For more information about how we can help call 01932 830664 or email enquiries@wardwilliams.co.uk