Electric company car tax: BIK, allowances and VAT

Electric company car tax in 2026/27: the short answer

A driver with a fully electric company car pays Benefit-in-Kind (BIK) tax on 4% of the car's list price in 2026/27. That rate rises to 5% in 2027/28. The company can also claim a 100% first-year allowance on a new zero-emission car bought before 1 April 2027, which deducts the full cost from taxable profit in the year of purchase.

This guide covers the three taxes involved: Income Tax and National Insurance on the driver, Corporation Tax on the company, and VAT.

Company car tax on electric cars: the BIK rates

BIK applies when a company car is available for private use, including commuting. The taxable benefit is the car's P11D value (the list price including most options) multiplied by the BIK percentage for its CO2 emissions. Fully electric cars have zero CO2 emissions, so they use the lowest band.

The highest rate for petrol and diesel cars is 37%, so an electric car stays far cheaper for the driver even as its rate rises.

Worked example: BIK on a £45,000 electric car in 2026/27

The company pays Class 1A National Insurance on the benefit, at 15% for 2026/27. It is a business cost. Charging the car does not add a fuel benefit, because electricity is not a fuel for car fuel benefit purposes.

Electric vehicle corporation tax: the 100% first-year allowance

If your company buys a new car with zero CO2 emissions, it can claim a 100% first-year allowance (FYA). You deduct the full cost from profits in the accounting period of purchase. GOV.UK lists this relief for purchases before April 2027, with the Corporation Tax end date 31 March 2027 (5 April 2027 for Income Tax).

• Used cars do not qualify for the 100% FYA. They go into the main pool, where writing down allowance is 14% a year from April 2026. Budget 2026 proposes cutting this to 12% from 1 April 2027.
• Leased cars: the company does not own the car, so it claims the lease rentals as an expense rather than capital allowances (unless it is a hire purchase or long funding lease).
• Timing: the purchase date is the contract date if payment is due within four months, otherwise when payment is due. Under hire purchase it is when you start using the car.
• Selling the car later: the proceeds can create a balancing charge, because you have already deducted the full cost.

The 100% FYA is scheduled to end after March 2027 unless extended. If you plan to buy, check the position before you sign.

Is an electric car a business expense? Charging costs

• Charging at the workplace for an employee or director creates no taxable benefit.
• Charging at home when the company reimburses a company-car driver: HMRC guidance says no separate charge arises under the benefits code. HMRC publishes an advisory electricity rate you can use. From 1 September 2026 it is 7p a mile for a home charger and 15p a mile for a public charger.
• Public charging for business miles in a company car can be reimbursed or paid by a charge card without a fuel benefit.
• Home chargepoint installation for a director: check the tax treatment with us before the company pays.

If a director uses their own electric car, the company can pay mileage at the approved rate instead. The rate is the same for electric cars. See the mileage allowance guide.

EV salary sacrifice for staff and directors

Under a salary sacrifice scheme, an employee gives up part of their gross salary for a leased electric car. Income Tax and National Insurance are worked out on the lower salary, and the employee is still taxed on the BIK. The company pays less employer National Insurance on the reduced salary. Whether it saves money depends on the lease cost, the car price and the person's tax band, so run the figures for each person before agreeing a scheme.

VAT on a company electric car

• Buying a car: you cannot normally reclaim VAT on a car that is available for private use. Exceptions are narrow, such as pool cars that meet HMRC conditions.
• Leasing a car: you normally cannot reclaim 50% of the VAT on the rental. The 50% block covers private use. You can reclaim the other 50%, subject to the usual rules.
• Charging: VAT on electricity can be recovered for the business use of the vehicle, whether charged at work or at a public point. Keep mileage records to split business and private use.

Changes to watch

• BIK on electric cars rises each year to 10% in 2030/31.
• Payrolling of company car benefits becomes mandatory from 6 April 2027 (Budget 2026), so the benefit is taxed through payroll instead of a P11D.
• A new mileage-based Electric Vehicle Excise Duty for electric and plug-in hybrid cars starts in April 2028.
• The 100% FYA on zero-emission cars is set to end in March 2027.

Common mistakes

• Using the 100% FYA on a used car.
• Assuming leased cars qualify for first-year allowances.
• Reclaiming all the VAT on a car with private use.
• Forgetting that BIK is charged on commuting as well as other private use.
• Using the P11D value without options, or the wrong year's rate.

Read our guide on buying or leasing a company car through a limited company or see how our Corporation Tax service handles vehicle capital allowances.