Electric Car Tax Benefits for UK Limited Companies

When it comes to tax planning, electric car tax benefits for UK limited companies are among the most rewarding incentives available. Beyond helping the environment, electric vehicles (EVs) bring genuine savings through capital allowances, reduced Benefit-in-Kind (BiK) rates, and lower running costs.

1. 100% First-Year Capital Allowance

Limited companies can claim 100% first-year allowance when purchasing a new and unused electric car. This means the entire cost can be deducted from taxable profits in the same accounting year, offering one of the most powerful electric car tax benefits for UK limited companies.

Example:
If your company earns £120,000 in profit and buys a £40,000 EV, taxable profit drops to £80,000, saving about £10,000 in corporation tax (at 25%).

2. Benefit-in-Kind (BiK) Rates April 2025 Update

From April 2025, the BiK rate for company car tax on electric cars increased from 2% to 3%, and will continue to rise annually until at least 2029/30. Even so, the rate remains far lower than for petrol, diesel, or hybrid vehicles, which can reach 37%.

Example:
A Tesla Model 3 costing £45,000 results in a taxable benefit of £1,350 (3%). A basic-rate taxpayer pays just £270 per year, a fraction compared to combustion engines.

3. Road Tax and Congestion Savings

Key electric car tax benefits for UK limited companies include:

• No Vehicle Excise Duty (Road Tax)
• Exemption from the London Congestion Charge (until Dec 2025 for zero-emission cars)
• Exemption from ULEZ charges

For companies based in London or other low-emission zones, these savings can reach thousands each year.

4. Salary Sacrifice Schemes

Another practical electric car tax benefit for UK limited companies is the salary sacrifice scheme. It allows employees (including directors) to exchange part of their gross salary for the use of an electric car, reducing Income Tax and National Insurance while keeping the Benefit-in-Kind (BiK) rate very low.

Example:

• Employee gross salary: £50,000 per year

• Salary sacrificed: £600 per month (£7,200 per year)

• Electric car provided: List price £40,000

• 2025/26 BiK rate for EVs: 3%

Tax comparison:
Without salary sacrifice, the employee pays tax and NI on the full £50,000. With salary sacrifice, taxable pay reduces to £42,800. The employee saves tax and NI on the £7,200 sacrificed, worth roughly £2,300 in savings for a basic-rate taxpayer.

The company also saves 13.8% employer’s National Insurance on the sacrificed amount (about £994 annually).
Together, these savings make salary sacrifice one of the most efficient ways to provide a company car.

Note: The employee still pays BiK tax on the car benefit, 3% of £40,000 = £1,200.
At 20% tax rate, that’s only £240 per year, much lower than a petrol or diesel equivalent.

5. EV Charging Infrastructure and Allowances

Businesses installing charging points can also claim 100% first-year allowance. There’s no taxable benefit when employees charge company cars at work, and home charging can be reimbursed at 9p per mile for business journeys, tax-free.

6. Buying vs Leasing

• Buying: You receive the full capital allowance immediately.
• Leasing: Lease costs are deductible against profits, though capital allowance doesn’t apply.

Your choice depends on cash flow and long-term ownership goals.

7. VAT Advantages

If the vehicle is used solely for business, 100% VAT can be reclaimed.
For mixed private use, 50% VAT is recoverable, and VAT on charging costs can still be claimed for business mileage.

8. External and Internal Resources

To confirm current rates, visit GOV.UK: Company Car Tax or HMRC Capital Allowances Guidance.
For expert help, explore our KSM Knowledge Base for more UK tax insights.

In Summary

The electric car tax benefits for UK limited companies remain compelling in 2025 and beyond.
Even with the BiK rate increasing from 2% to 3%, EVs still provide:

• Immediate capital allowance relief
• Reduced personal and corporate tax liabilities
• Environmental and reputational gains

When planned correctly, an electric company car can spark long-term financial efficiency and sustainability for your business.