Unless you’ve been living on Mars, which you soon might be thanks to a well-known EV developer, you’re probably aware of the global drive (pun intended) towards electric cars and eco-friendly modes of transportation. 

The switch to using green fuels, and hence electric vehicles, is a main focus of the UK government's strategy to reduce carbon emissions. 

This policy sets out ambitious annual sales targets for car manufacturers, starting with 22% of new car sales in 2024, rising to 33% in 2026 and 38% in 2027, with the overarching objective of all new cars and vans being zero-emission by 2035.

‘’The question is no longer whether the internal combustion engine’s days are numbered, but how fast we get there.” - Richard Hebditch, director of Transport and Environment UK

But EVs are not just good news for the environment, they could also offer significant gains on the company car tax front for employers, business owners and employees. So if you’re a convicted petrol-head, at least you can take some satisfaction in the fact that there are many potential savings to be had.

EV tax benefits at a glance

The tax treatment depends on whether you’re buying the vehicle personally, through a Limited company, or using it as an employee benefit, so it’s important to look at the rules that apply to your circumstances.

Road tax & congestion

Previously, a significant tax benefit for electric vehicles was their exemption from road tax (Vehicle Excise Duty - VED, as it's formally known). However, this changed from 1 April 2025. Now, electric, zero, and low-emission cars are subject to new VED rates (Vehicle tax for electric and low-emissions vehicles).

For the 2026/27 tax year, the rates are as follows:

• Electric cars registered on or after April 1st 2025 will pay a £10 First-Year Rate.
• From the second year onwards, they will pay the standard rate, which will be £200 per year. 
• If your vehicle has a list price of over £50,000, an additional £440 per year “expensive car supplement” applies from the second year for five years.

The days of free entry into city centres are also numbered. The 100% Cleaner Vehicle Discount for the London Congestion Charge ended on December 25th 2025. As of January 2nd 2026, the new tiered discount system began:

• Electric cars will get a 25% discount.
• Electric vans, HGVs, and quadricycles will get a 50% discount. 

This means that, while EVs no longer benefit from an exemption from VED, there can still be savings for some drivers through reduced road-user charges.

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Capital Allowance

Aside from the above exceptions for road tax and congestion charges, electric vehicles offer even more tax benefits for companies, business owners, and employees using company cars.

For the first year of purchase, businesses can claim 100% capital allowances for the cost of an EV against profits before tax, without any limit on the value of the vehicle. Although the vehicle must be new and unused. This is a great incentive to use EVs as company cars, especially as from April 2021, you can no longer claim this tax-relief for hybrid vehicles.For the first year of purchase, businesses can claim 100% capital allowances on the cost of a new and unused electric car against profits before tax, with no limit on the vehicle’s value. This makes EVs an especially attractive option for company cars, as first-year relief is not available for hybrid vehicles. 

For example, if a company buys a qualifying new electric car for £50,000, it could claim a £50,000 first-year capital allowance. At the main 25% Corporation Tax rate, this could reduce the company’s Corporation Tax bill by up to £12,500, assuming it has sufficient taxable profits to benefit from the deduction.

VAT

VAT treatment depends on how the EV is bought and used. For example, if a business leases a car that is available for private use, it can generally reclaim 50% of the VAT on the lease charges. If a car is bought outright, VAT recovery is generally restricted unless the car is used exclusively for business.

VAT on charging can also be reclaimed in certain circumstances, although the rules depend on where the vehicle is charged and who owns the vehicle. We recommend reading this guide for more info. 

‘Benefit in kind’

Another tax benefit of EVs is a far lower Benefit in Kind (BIK) charge in comparison to non-electric vehicles.

As with other benefits-in-kind, such as dental care, gym memberships, cycle-to-work schemes, etc, company cars that are used for personal as well as business use incur a tax.

The rate at which you are taxed for a BIK is based on the CO2 emissions and the vehicle's list price (not the amount you paid for it). For petrol or diesel-powered vehicles, this can be up to 37%. 

So, when you learn that the BIK rate for EVs is just 4%, you can see how going green could increase your revenue or income. This rate will stay at 2% until 2025.

The comparison below illustrates the savings clearly. Notice that the cars are the same model and the EV has a higher list price…

For example, a £61,190 electric car with a 4% BIK rate creates a taxable benefit of £2,448. For a basic-rate taxpayer, that would mean around £490 of income tax for the year. 

If you are an employee your employer will complete a P11D from, or use the payrolling system to report tax on a benefit-in-kind. If it’s the former they should give you a copy of the P11D form. If you’re self-employed, the P11D rules described above do not apply to you.

Fuel

Electricity used to charge a company electric car is treated differently from petrol or diesel fuel for benefit-in-kind purposes. For example, where an employer provides electricity for a company car at the workplace, there is no additional taxable benefit for the electricity.

From September 1st 2026, the advisory electricity rate for fully electric cars is 7 pence per mile for home charging and 15 pence per mile for public charging.

For example, if you drive 2,000 business miles in a fully electric company car and use the 7p home-charging rate, the advisory rate would result in a reimbursement of £140. At the 15p public-charging rate, it would be £300.

The rules differ depending on whether the vehicle is a company car or your own personal vehicle, so it’s important to use the appropriate mileage rules for your circumstances.

For more details on reimbursement to a company as an employee, or to an employee as a company see HMRC’s webpage.

Tax on charging EVs

The cost of charging EVs and providing charging facilities may be eligible for taxable benefit exemptions. Whether employers that provide charging points for their employees are exempt from BIK tax, depends on a few criteria:

• The charge point is installed at or near the company workplace and is available to employees generally.
• An employer provides electricity for a company's electric car. Charging a company electric car at home or at a public charging point can be exempt from a separate benefit-in-kind charge where the employer reimburses the cost of electricity used to charge the company car. The reimbursement must relate solely to the company's electric car.
• The workplace charging exemption does not apply to charging facilities at an employee's home.

You can check your tax liability for the charging of employee cars here with HMRC’s online form.

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Electric bikes

There are also tax benefits to be had from a two-wheeled perspective. With the Cycle-to-Work scheme companies can offer a tax-free benefit to employees. 

Under the scheme, employers can provide qualifying bicycles and cycling equipment to employees, including e-bikes, through a salary sacrifice or loan arrangement. The employee can then use the equipment for qualifying journeys, subject to the scheme rules.

The specific tax treatment depends on how the scheme is structured, so employers should check the current Cycle to Work rules rather than assuming the scheme provides a fixed discount on the cost of an e-bike.

Grants for EVs

If you’ve been impressed with the tax benefits of electrical vehicles thus far, here’s something that will really get you charged-up…

On top of the tax breaks available, the government also issues a number of grants to encourage the adoption of green transportation.

These are offered by the Office for Zero Emission Vehicles, some of the current grants are as follows: 

1. ‍EV chargepoint grant (EVCPG) - Provides up to £500 off the cost of purchasing and installing a chargepoint to home-owners and renters. This scheme has been extended until March 31st 2027.‍
2. Workplace Charging Scheme (WCS) - Provides up to 75% of the cost (inc. VAT) of purchasing and installing a chargepoint, capped at a maximum of £500 per socket and 40 sockets across all sites per applicant. Available to qualifying charities, businesses and organisations. This grant has been extended to March 31st 2027.
3. Grants for state-funded education institutions - These allow state-funded schools and similar bodies to claim support for installing charging infrastructure. This is in place until March 31st 2027, and the maximum grant per socket is £2,000.

To see the full range of grants see HMRC’s webpage.

Is an electric car tax-efficient for me?

An electric car can be tax-efficient, but whether it’s the right choice depends on how you buy it, how you use it, and your personal tax position.

An EV could be particularly tax-efficient if you:

• Run a Limited Company and are considering a company car.
• Are buying a new and unused EV through your business.
• You want to take advantage of the 4% company car BIK rate in 2026/27.
• Drive a significant number of business miles. 
• Can make use of the available charging arrangements.

The tax advantages may be less significant if you:

• Are buying the car personally rather than through your company.
• Are looking at a second-hand EV, which doesn’t qualify for the 100% first-year allowance.
• Are buying a higher-value EV that is subject to the expensive car supplement.
• Make relatively little business mileage.
• Aren’t VAT registered and therefore can’t reclaim VAT on eligible costs.

The key takeaway is that an EV isn’t automatically the most tax-efficient option for everyone. The biggest potential benefits tend to come from the combination of company car tax, capital allowances and charging and mileage rules, so it’s worth comparing the tax treatment with the way you actually plan to buy and use the car.

Hopefully upon learning about the various tax and financial benefits on offer for electric vehicles, you can see that there are many incentives for switching to eco-friendly transport for work and business. As we’ve pointed out in this article, these benefits are likely to be curtailed as the push towards a green future gathers momentum. So if you’re looking for further advice you can speak to our team of experts.