Severn Accounting
Tax & Accounting

Electric company cars – are they still tax efficient

By Ali Jaw ·

The electric vehicle (EV) revolution is well underway, and many UK business owners are considering whether switching their company car fleet to electric models makes financial sense. With rising fuel costs and environmental concerns, EVs seem like an attractive option—but are they still tax-efficient? The short answer is yes, though the landscape has shifted recently, and it’s worth understanding how the tax rules work before making your next company car decision.

How company car tax works

Company car tax in the UK is calculated using the benefit-in-kind (BIK) system. HMRC applies a percentage of the car’s list price, known as the benefit percentage, which is then added to your taxable income. The percentage depends on the car’s CO₂ emissions, meaning lower-emission vehicles attract lower tax bills.

For the 2024/25 tax year, the benefit percentages range from 11% for zero-emission vehicles (including pure electric cars) up to 37% for petrol or diesel cars with higher emissions. This means an electric car with a list price of £40,000 would incur a BIK charge of just £4,400 (11% × £40,000), whereas a comparable petrol car might incur a charge of £8,000–£14,800 depending on its CO₂ output.

For a higher-rate taxpayer (paying 40% income tax), the annual tax saving from choosing a £40,000 EV over a conventional car could be £2,000–£4,000 or more. That’s a meaningful saving over a three-year lease cycle.

The catch: recent changes to EV tax relief

However, there’s been a significant change worth noting. Until 5 April 2025, all-electric cars qualify for the lowest 11% benefit percentage. From 6 April 2025 onwards, this will increase to 12% in the 2025/26 tax year. Whilst this is still competitive compared to conventional cars, it signals that the tax advantage of EVs is gradually narrowing.

Additionally, there’s been discussion about potential further changes to company car tax policy. The government continues to review whether the current incentive structure for zero-emission vehicles remains appropriate as EV adoption grows. If you’re considering a new car purchase or lease arrangement, it’s worth factoring in these future changes when evaluating your options.

Capital allowances and company purchases

If your company buys an electric car outright (rather than leasing), there’s potentially another benefit available. A 100% capital allowance may be available for electric cars and certain low-emission vehicles under the Plant and Machinery rules, although this is subject to various conditions. This can provide valuable relief when calculating corporation tax, effectively reducing the company’s taxable profit in the year of purchase.

This is distinct from BIK tax and can make outright purchase more attractive for some businesses. However, capital allowances rules are complex, and what qualifies depends on the vehicle’s specification and your company’s circumstances. It’s essential to take professional advice before assuming you’ll qualify.

Charging at home: additional considerations

One often-overlooked area is how charging arrangements affect the BIK calculation. If your employer provides charging equipment at your home, HMRC may impose an additional benefit-in-kind charge for the electricity provided. However, many employers provide free charging arrangements, and the rules here are nuanced. Some relieving provisions exist for modest charging provision, but clarity is essential to avoid unexpected tax bills.

If you’re a business owner with employees using company EVs, the practical logistics and cost of providing charging infrastructure should feature in your financial planning alongside the tax considerations.

Is an EV still tax-efficient?

In summary, yes—electric company cars remain tax-efficient compared to conventional alternatives, particularly for higher-rate taxpayers. An 11% benefit percentage substantially undercuts the 25–37% rates for petrol and diesel cars. However, the advantage is gradually narrowing, and the decision should factor in:

  • The actual list price of the vehicle you’re considering
  • Your personal tax rate
  • Expected fuel and maintenance savings (EVs have lower running costs)
  • The lease terms or purchase price, not just the tax element
  • Future changes to policy (likely further adjustments over the next few years)

For many business owners, EVs make sense both financially and from a corporate responsibility perspective. However, each situation is unique, and the tax planning landscape continues to evolve.

For tailored advice on whether an electric company car is right for your circumstances, or to discuss capital allowance claims on vehicle purchases, contact Severn Accounting—we’re here to help.