Tax Implications of Electric Vehicles
What Tax Relief is Available on Electric Cars for Businesses?
The purchase of a brand new vehicle with zero-emissions is eligible for a 100% First Year Allowance (FYA), meaning that the full cost can be offset agains the profits of the business in the year in which it is purchased.
The purchase of a new and unused zero-emission car can qualify for a 100% First Year Allowance (FYA), allowing the full qualifying cost to be deducted when calculating taxable profits in the year of purchase. This relief is currently available until 31 March 2027 for companies and 5 April 2027 for unincorporated businesses.
A second-hand electric car, or a new or second-hand car with CO₂ emissions of 50g/km or less, will generally qualify for main-rate writing-down allowances. From April 2026, the main rate is 14%. Cars with CO₂ emissions above 50g/km generally qualify for the 6% special-rate writing-down allowance.
VAT on the purchase of a car can normally only be recovered where the business is VAT registered and the car is used exclusively for business purposes and is not available for private use. There are also specific exceptions for certain businesses, such as taxis, driving schools and car hire businesses.
If a car is leased, rather than bought outright, 50% of the VAT on the lease costs can be reclaimed where there is mixed business and private use of the vehicle. VAT on servicing or maintenance can be recovered in full.
What Tax Relief is Available on Commercial Vehicles for Businesses?
Vans and other qualifying commercial vehicles are generally treated differently from cars for capital allowance purposes. The cost of a qualifying commercial vehicle may be eligible for the Annual Investment Allowance (AIA), potentially allowing 100% of the qualifying cost to be deducted from taxable profits in the year of purchase.
Unlike the special 100% first-year allowance for zero-emission cars, a commercial vehicle does not generally need to be electric to qualify for the AIA.
VAT-registered businesses can generally recover VAT on the purchase of a commercial vehicle where it is used for business purposes, subject to the normal VAT rules. The VAT treatment can be affected where there is significant private use.
What Tax Relief is Available on Electric Charging Points for Businesses?
Businesses can currently claim a 100% first-year allowance on qualifying expenditure on new and unused electric vehicle charging equipment.
This relief is available until 31 March 2027 for Corporation Tax purposes and 5 April 2027 for Income Tax purposes.
What are the Tax Implications of Providing Electric Vehicles to Employees?
The normal Benefit in Kind (BIK) rules apply when electric cars are provided to employees or directors and are available for private use.
The rate for zero-emission cars for 2026/27 is 4% of the car's taxable list price, including the cost of the battery.
The employer will also generally pay Class 1A National Insurance at 15% on the taxable Benefit in Kind.
Where an employer provides electricity to charge a fully electric company car, there is generally no separate taxable benefit on the employee for that electricity, including where the car is available for private use. Different rules can apply where the electric vehicle is personally owned by the employee.