Can I Claim Electric Car as a Business Expense?
Yes - electric company cars are highly tax-efficient with only 2% Benefit in Kind rate (2025/26).
What HMRC Says
Electric vehicles have the lowest BIK rate at 2% of list price. Company also gets 100% first-year capital allowances.
When You Can Claim
- Company purchases electric vehicle (100% FYA)
- Company leases electric vehicle (payments deductible)
- Charging costs for business mileage
- Home charger installation (up to £350 tax-free)
When You Cannot Claim
- Personal electricity for home charging (BIK implications)
- Private use without BIK declaration
Good to Know
Capital Allowance: 100% First Year Allowance means full cost deducted from profits immediately
Understanding Electric Car Expenses
Electric vehicles represent the single most tax-efficient company car option available in the UK today. The combination of a 2% Benefit in Kind rate, 100% First Year Allowances for the company, and no fuel benefit charge makes EVs the standout choice for directors looking to acquire a vehicle through their limited company.
The financial case is compelling. Take a £50,000 electric car: the BIK is just 2% of the list price, which is £1,000. A 40% higher-rate taxpayer pays £400 per year in income tax on this benefit. Compare that with a similarly priced petrol car at a 33% BIK rate, creating an £16,500 BIK and £6,600 in annual income tax. The electric car saves the director over £6,000 per year in personal tax.
From the company's perspective, the 100% First Year Allowance means the entire purchase price is deducted from profits in the year of acquisition. A £50,000 EV reduces your Corporation Tax bill by £12,500 (at 25% CT rate) in year one. For petrol and diesel cars, you are limited to 6% writing-down allowance per year (£3,000 in year one on the same price), meaning it takes decades to fully deduct the cost.
Leasing an electric vehicle is also fully deductible. Unlike high-emission cars where 15% of the lease cost is disallowed, zero-emission vehicle leases are 100% deductible. This makes leasing very attractive if you prefer not to tie up company capital, or if you want a new car every 3-4 years.
Home charging infrastructure qualifies for additional relief. Your company can pay for the installation of a home charge point (up to £350 is exempt from BIK under the specific HMRC exemption). The advisory electricity rate for reimbursing business mileage in an electric company car is 7p per mile for 2025/26. Your company can reimburse you at this rate for business miles driven tax-free.
The BIK rates for electric vehicles are set to increase gradually: 3% in 2026/27, 4% in 2027/28, and 5% in 2028/29. Even at 5%, the tax advantage over petrol and diesel cars remains enormous. Locking in an electric company car now still provides years of very low BIK rates.
One important consideration is that the BIK is based on the manufacturer's list price, not the price you pay. Discounts, dealer offers, and second-hand purchases do not reduce the BIK. A used Tesla bought for £35,000 with an original list price of £50,000 still has BIK calculated on £50,000. This makes buying new or nearly new more tax-efficient relative to the BIK cost.
Real-World Examples
Company purchases a new Tesla Model Y
A consultancy buys a Tesla Model Y Long Range for £52,000. The company claims 100% FYA, reducing Corporation Tax by £13,000 in year one. The director pays BIK of 2% (£1,040), costing £416 in income tax at 40%. Total first-year benefit: £13,000 CT saving vs £416 personal tax cost.
Leasing an electric vehicle
A director's company leases a BMW iX1 at £450 per month (£5,400/year). The full lease payment is deductible against profits with no 15% restriction. The director pays BIK on the list price of £42,000 (2% = £840), costing £336 per year in tax at 40%.
Home charger installation
The company pays £1,200 for a home charging unit installation. The first £350 is exempt from BIK under the specific HMRC exemption. The remaining £850 is technically a BIK, though some companies include it as a general business expense related to the car's operation.
Used electric car BIK trap
A director finds a 2-year-old Audi Q4 e-tron for £28,000, but its original list price was £48,000. The BIK is calculated on £48,000 (2% = £960), not the £28,000 purchase price. While the company still gets capital allowances on the £28,000 cost, the BIK is disproportionately high relative to the price paid.
Common Mistakes to Avoid
- Buying a used electric car without checking the original list price, which determines BIK - a heavily depreciated EV can have a BIK that seems high relative to its current value.
- Assuming all hybrid vehicles qualify for the 2% BIK rate - only fully electric (zero-emission) vehicles get 2%. Plug-in hybrids have higher rates based on their electric range and CO2 emissions.
- Not setting up a home charger reimbursement arrangement, missing out on the 7p per mile advisory rate for business mileage.
- Forgetting to declare the BIK on form P11D because the tax amount seems negligible - even the 2% rate must be reported.
Frequently Asked Questions
What is the BIK rate for electric cars in 2025/26?
The BIK rate for zero-emission (fully electric) cars is 2% for 2025/26. It will rise to 3% in 2026/27, 4% in 2027/28, and 5% in 2028/29. These rates apply to all zero-emission vehicles regardless of the car's price.
Do plug-in hybrids get the same BIK rate as fully electric cars?
No. Plug-in hybrids (PHEVs) have BIK rates between 2% and 14% depending on their electric range and CO2 emissions. Only fully electric vehicles with zero tailpipe emissions qualify for the 2% rate. A typical PHEV might have a BIK rate of 5-8%, which is better than petrol but significantly more than a full EV.
Can my company claim back VAT on an electric car purchase?
VAT on car purchases is only reclaimable if the car is used exclusively for business with no private use whatsoever. In practice, most directors have some private use, so the VAT cannot be reclaimed. On lease payments, you can reclaim 50% of the VAT if there is any private use, or 100% if the car is strictly business-only.
Is it better to buy or salary sacrifice an electric car?
Salary sacrifice EV schemes are excellent for employees because they save both income tax and NI. For director-shareholders, the comparison is between salary sacrifice, company purchase, and personal purchase funded by dividends. Company purchase with 100% FYA is usually most efficient for directors with sufficient company profits.
What happens when I sell or replace the electric company car?
If the company sells the car, a balancing charge or allowance adjusts the capital allowances previously claimed. If you sell for more than the tax written-down value, the excess is added back to profits. For a car that had 100% FYA, the entire sale proceeds are added back as a balancing charge, though offset by the original relief.
Source: HMRC Employment Income Manual EIM23000 - Car benefit, Capital Allowances Act 2001 s45DA, and HMRC Advisory Fuel Rates
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