Tax Relief on Electric Company Cars
On this page
What Qualifies as an Electric Company Car? →
Benefit in Kind (BIK) Tax on Electric Company Cars →
Leasing an Electric Company Car (Operating Lease) →
PCP (Personal Contract Purchase) Through a Company →
Purchasing an Electric Car Outright (Company Purchase) →
Summary: Capital Allowances by Funding Method →
Charging Costs & Running Expenses →
Insurance, Servicing & Repairs →
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UK Guide
Electric company cars are one of the most tax-efficient benefits currently available to UK businesses. However, the tax treatment depends heavily on how the vehicle is acquired (leasing, PCP, hire purchase, or outright purchase), who uses it, and whether it is fully electric or hybrid.
This guide explains:
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The tax relief available under each funding method
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How capital allowances work in each case
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How Benefit in Kind (BIK) tax applies
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What running and charging costs can be claimed
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Common pitfalls to avoid
This guide is written by Karia Accountants, UK Chartered Accountants specialising in owner-managed businesses and tax planning.
What Qualifies as an Electric Company Car?
For tax purposes, a fully electric vehicle (EV) is one with:
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CO₂ emissions of 0g/km
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Powered solely by electricity
Plug-in hybrids are treated differently and generally receive less favourable relief.
Benefit in Kind (BIK) Tax on Electric Company Cars
Current BIK Rates for Fully Electric Cars
Tax Year
BIK Percentage
2023/24
2%
2024/25
2%
2025/26
3%
2026/27
4%
2027/28
5%
The BIK is calculated as:
List Price × BIK % × Employee’s Income Tax Rate
Example
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Electric car list price: £50,000
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BIK rate (2024/25): 2%
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Taxable benefit: £1,000
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40% taxpayer cost: £400 per year
This is why electric company cars are exceptionally attractive compared to petrol/diesel vehicles.
Employer’s Class 1A NIC is also payable at 13.8% on the taxable benefit.
Leasing an Electric Company Car (Operating Lease)
Tax Treatment
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Lease rentals are treated as a revenue expense
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100% of lease costs are deductible for corporation tax
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No restriction applies for electric vehicles (unlike petrol/diesel cars)
VAT on Leasing
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50% of VAT on lease rentals is recoverable if there is any private use
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100% VAT recoverable if the car is strictly business-only (rare in practice)
Capital Allowances
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❌ No capital allowances
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The leasing company claims the allowances, not your business
Best for:
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Businesses wanting simplicity and predictability
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Directors wanting low upfront cost
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Short- to medium-term use
PCP (Personal Contract Purchase) Through a Company
PCP arrangements are often misunderstood.
Key Point
Most PCP agreements do not transfer ownership, so for tax purposes they are treated similarly to leasing until the final balloon payment is exercised.
Tax Treatment
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Monthly payments are generally deductible as a revenue expense
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Capital allowances only apply if ownership is eventually taken
VAT
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Same VAT rules as leasing
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Balloon payment VAT position depends on contract terms
Common Pitfall
Clients often assume PCP = ownership. For tax purposes, this is not always correct.
Business Hire Purchase (HP)
Hire Purchase does transfer ownership, making it fundamentally different from leasing or PCP.
Capital Allowances
Fully electric cars qualify for:
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100% First Year Allowance (FYA) if new and unused
This means:
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Full cost of the vehicle can be deducted in year one
Interest vs Capital
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Interest element: deductible as a revenue expense
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Capital element: relieved via capital allowances
VAT
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VAT is usually payable upfront on the full cost
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VAT recovery depends on business use (often restricted for cars)
Best for:
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Profitable limited companies
Directors planning to keep the vehicle long-term
Purchasing an Electric Car Outright (Company Purchase)
Capital Allowances
If the car is:
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New
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Fully electric
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Purchased outright by the company
Then:
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100% First Year Allowance (FYA) is available
This creates an immediate corporation tax saving.
Example
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Electric car cost: £60,000
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Corporation tax rate: 25%
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Tax saved in year one: £15,000
If Not Eligible for FYA
Vehicle enters the main pool at 18% writing down allowance
Summary: Capital Allowances by Funding Method
Interest + allowances
Leasing
PCP
Hire Purchase
Outright Purchase
Capital Allowances
❌ No
Usually ❌
✅ Yes
✅ Yes
Revenue Deduction
Lease payments
Monthly payments
Interest + allowances
Via FYA or WDA
Charging Costs & Running Expenses
Electricity Charging at Business Premises
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Electricity cost is deductible
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No BIK arises for charging at work
Home Charging (Company Car)
If the company reimburses:
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Actual electricity cost: allowable
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HMRC advisory electric rate may be used
Public Charging
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Charging costs paid by the company are deductible
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No BIK arises where charging relates to a company car
Mileage Claims
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Electric cars do not use HMRC mileage rates when they are company cars
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Actual costs are claimed instead
Insurance, Servicing & Repairs
All allowable:
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Insurance
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Servicing
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Repairs
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MOT
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Road tax (VED is £0 for EVs until future changes)
These are fully deductible business expenses when paid by the company.
What Is Not Allowed?
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Claiming capital allowances on a leased vehicle
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Double-claiming electricity costs and mileage
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Recovering full VAT where private use exists
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Treating PCP as ownership without checking the contract
Is an Electric Company Car Right for You?
Electric company cars are typically most effective for:
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Limited company directors
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Higher-rate taxpayers
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Profitable companies with retained reserves
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They are often far more tax-efficient than paying extra salary or dividends.
How Karia Accountants can help sole traders
At Karia Accountants, we:
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Review funding options before you commit
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Model BIK vs dividend vs salary alternatives
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Ensure HMRC-compliant treatment
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Advise on VAT recovery and capital allowances
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Liaise with finance providers where needed
If you are considering an electric company car, proper structuring before purchase is critical.
