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Electric vehicles offer significant tax advantages, including:

Switching to electric vehicles (EVs) can bring substantial tax savings for limited companies while also supporting your business’s sustainability goals. As electric vehicle adoption continues to grow, with a 41.6% increase in registrations reported by the Society of Motor Manufacturers and Traders in January 2025 alone, it’s worth understanding the incentives currently available for your company.

Why the Government Supports EV Adoption
To meet the UK’s commitment to achieving net zero greenhouse gas emissions by 2050, the government is encouraging businesses to reduce their reliance on petrol and diesel vehicles. One key strategy is using tax incentives to promote the adoption of EVs across corporate fleets, helping to reduce transport emissions—the largest contributor to the UK’s carbon footprint.

Capital Allowances
Companies purchasing a brand-new fully electric vehicle outright or via hire purchase can claim 100% First Year Allowance (FYA), offsetting the cost against their corporation tax bill in the year of purchase. This also extends to installing EV charging points at an employee’s home.

The Autumn Budget 2024 announced that this 100% FYA on zero-emission vehicles would continue until 31 March 2026.

Note: This allowance is not available if the vehicle is leased, as the company does not own the car. It’s also important to consider that when the vehicle is sold, the company will pay corporation tax on the sale proceeds.

Traditionally, cars are only eligible for writing down allowances over time, making the 100% FYA for EVs a significant tax benefit.

Corporation Tax Savings on Lease Payments
If your company leases an EV, the lease payments are treated as an expense, reducing your company’s taxable profits and your corporation tax liability.

Corporation Tax and Hire Purchase Agreements
When acquiring an EV under a hire purchase agreement, your company not only benefits from the 100% FYA but can also claim corporation tax relief on the interest charged within your monthly payments.

VAT Considerations
For outright purchases and hire purchase agreements, VAT on the purchase price can only be reclaimed if the vehicle is used exclusively for business purposes (commuting does not count). If the EV is leased, your company can reclaim 50% of the VAT on lease payments.

Benefit-in-Kind (BIK) Rates
Using an electric company car for personal use creates a benefit-in-kind charge, but EVs benefit from significantly lower rates than petrol or diesel cars. Current and upcoming BIK rates for fully electric vehicles:
2024–25: 2% of the list price
2025–26: 3% of the list price
2026–27: 4% of the list price
2027–28: 5% of the list price

By comparison, BIK rates for petrol and diesel vehicles can reach up to 37% based on emissions, making EVs far more tax-efficient.

Tax calculations:
- Company pays: List price × BIK rate (e.g., 3%) × 15% (Employer’s NIC).
- Employee pays: List price × BIK rate × employee’s income tax rate.

The cost of installing a home charging point for an employee’s company car is not treated as a taxable benefit-in-kind.

Changes to Vehicle Excise Duty (VED) from April 2025
Currently, EVs are exempt from the £190 (rising to £195) flat rate of VED applied to most new cars, as well as the expensive car supplement for vehicles over £40,000. However, from 1 April 2025, EVs will be subject to the same VED rates as petrol and diesel vehicles, which could mean paying up to £620 annually for some vehicles.

Electricity as a Business Expense
Electricity provided for charging company EVs is not treated as a benefit-in-kind if used for business journeys. Businesses can cover the cost of public or home charging, with employees logging private mileage for deduction, or employees can pay upfront and claim reimbursement. All electricity expenses for business travel are fully tax-deductible.

Grants to Support EV Adoption
In addition to tax benefits, grants are available to support EV adoption in businesses:The EV Infrastructure Grant helps SMEs with the cost of installing multiple charge point sockets and related infrastructure, with grants between £500 and £25,000.The Workplace Charging Scheme Grant offers financial support for installing charging points at your business premises.

Transitioning your company fleet to electric can offer significant financial and environmental benefits, but it’s important to structure your purchases to maximise the available tax reliefs. The team at ALS Accountants are here to guide you through the process, ensuring you understand the best approach for your business. If you are considering acquiring an electric vehicle and want to make the most of the tax benefits available, please get in touch.

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