Buying an electric car through my limited company

Originally posted on: 22 February 2023
Updated on: 27 November 2025

Buying a car through your limited company can be complex, and in many cases it creates more tax charges than savings – especially if the vehicle is used only lightly for business or mainly for personal travel.

That said, the UK government still offers generous incentives for fully electric, zero-emission vehicles. If you buy one through your company, you can tap into tax benefits that petrol and diesel cars simply don’t get. For example, you can currently claim 100% First Year Allowances (FYA) on brand-new electric cars, wiping the full purchase cost against your company’s profits for corporation tax purposes. There are also grants available to help with installing charging points at your business premises via the Workplace Charging Scheme.

Of course, it’s not all about cars. Another tax-efficient and health-boosting option is the Cycle to Work scheme, which allows you to spread the cost of a bike through your company while saving tax.

Still, there are trade-offs. Electric cars often carry higher upfront purchase prices, and while running costs are much lower than petrol or diesel, it can take several years before the savings balance out. And with new rules applying from April 2025 – like company car tax rates rising from 2% to 3% Benefit-in-Kind (BiK) and the introduction of Vehicle Excise Duty (road tax) on EVs – contractors need to weigh the numbers carefully.

If you’re considering buying a new Tesla or any other EV through your limited company, this guide will walk you through the real-world tax impacts for the 2025/26 tax year.

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Eligibility and Benefits

Buying an electric car through a limited company in the UK can still be one of the most tax-efficient ways to acquire a vehicle, provided you use it for business purposes. Your company must be a registered UK business, and the car must be at least partly for business use – but the tax treatment makes it very attractive compared to petrol or diesel vehicles.

Here are the key benefits for the 2025/26 tax year:

Corporation Tax Savings

• New, fully electric cars (0 g/km CO₂) qualify for a 100% First Year Allowance (FYA). This means your company can deduct the entire purchase price from its taxable profits in the year of purchase.
• With corporation tax rates now at 19% for small profits (up to £50,000) and 25% for higher profits (above £250,000, with marginal relief in between), the savings can be significant. For example, a £40,000 electric car could reduce your corporation tax bill by up to £10,000 at the 25% rate.
• The 100% FYA is available until 31 March 2026, after which EVs will only qualify for the standard 18% writing-down allowance unless the policy is extended.

Income Tax Benefits

• Electric company cars are subject to a very low Benefit-in-Kind (BiK) rate compared to petrol or diesel.
• In 2025/26, the BiK rate for fully electric cars is 3% of the car’s list price, rising gradually to 4% in 2026/27 and 5% in 2027/28.
• For example, a £40,000 EV has a BiK value of £1,200 in 2025/26. A basic-rate taxpayer would pay just £240 in tax on that benefit – far lower than the thousands that would apply to a petrol or diesel equivalent.

National Insurance Savings

• Since the EV is a company asset, the business pays Employer’s National Insurance (currently 13.8%) on the BiK value – but because the BiK is so low, the NI cost is minimal. In the above example, the NI would be only £165.60 per year.

Environmental Benefits

• EVs produce zero tailpipe emissions, reducing your company’s carbon footprint and boosting your green credentials.
• From 2025, EVs also remain exempt from the London Congestion Charge and many local clean-air zone charges, adding to long-term cost savings.

Bottom line: Buying an EV through your limited company in 2025/26 remains both a financially smart and environmentally responsible choice – but with BiK creeping up and the 100% FYA ending in March 2026, it may be worth acting sooner rather than later.

Issues to consider when buying an electric car

Before purchasing an electric car through your company, it’s important to understand the details that shape the tax impact. Key factors include:

• CO₂ rating – Only fully electric cars with 0 g/km emissions qualify for the 100% First Year Allowance (FYA) until 31 March 2026. Cars with emissions between 1–50 g/km no longer offer the same level of relief and usually fall into the 18% writing-down allowance category.
• Electric range – Still relevant for low-emission hybrids, since the Benefit-in-Kind (BiK) rate for those depends partly on their electric-only range. For fully electric cars, the BiK rate is fixed at 3% in 2025/26.
• Full retail price (P11D value) – The list price of the car, including optional extras, is used to calculate BiK tax. Even if you negotiate a discount, HMRC uses the official retail value.

Realistically, if there’s any private use of the car, only fully electric, zero-emission vehicles make sense from a tax efficiency standpoint in 2025/26. Plug-in hybrids and low-emission petrol/diesel cars often generate higher BiK charges that cancel out much of the benefit.

You can model different scenarios (car value, CO₂ rating, range, and tax year) using the HMRC Company Car and Fuel Benefit Calculator.

Road Tax (Vehicle Excise Duty) for EVs

One new cost from April 2025 is Vehicle Excise Duty (VED), which now applies to electric cars. Previously, EVs were exempt. The new rules mean:

• First year: £10 VED for zero-emission cars.
• From year two onwards: the standard annual rate of £195 (2025/26 rate) applies.
• Expensive car supplement: If the car’s list price exceeds £40,000, an additional £355 per year applies in years 2–6.

This doesn’t affect your corporation tax or BiK position, but it does add a running cost you’ll want to factor in – particularly if you’re considering a higher-value EV.

Business vs personal use

How you use the car makes a big difference to the tax outcome.

• Solely business use
  If the car is used exclusively for business purposes (for example, a genuine pool car that stays at the office and is available for multiple employees), your company can reclaim 100% of the VAT and claim capital allowances against corporation tax. This creates the maximum tax efficiency. However, note that commuting between home and office is always classed as personal use, so very few company cars qualify as “business only.”
• Personal use only
  If you buy the car through your company but intend to use it entirely for personal travel, it will be treated as a Benefit-in-Kind (BiK). You’ll pay income tax on the taxable value, and your company will also pay Employer’s National Insurance at 13.8%. In 2025/26, fully electric cars have a BiK rate of 3% of list price – still very low compared to petrol and diesel cars (which can be taxed up to 37%).
• Mixed business and personal use
  For most contractors and small company directors, the reality is a mix of business and personal use. In this case, your company still gets a corporation tax saving from capital allowances, while you as the employee pay income tax on the BiK. Fortunately, the BiK for electric cars remains very modest. For example, a £40,000 EV has a BiK value of £1,200 in 2025/26, meaning just £240 in income tax for a basic-rate taxpayer and around £166 in Employer’s NI.

The combination of low BiK charges and generous First Year Allowances is what makes electric cars unusually attractive as company cars, even when there’s significant private use.

New vs second hand

Brand-new fully electric cars
If your limited company buys a brand new, fully electric car (0 g/km CO₂) and you are the first registered keeper, you can currently claim a 100% First Year Allowance (FYA). This allows your company to deduct the full purchase price from its taxable profits in the year of purchase – a very powerful tax-saving tool.

• Example: A £40,000 new EV could reduce your corporation tax bill by up to £10,000 if you’re paying the 25% rate (or £7,600 if at the 19% small-profits rate).
• The 100% FYA remains available until 31 March 2026. After that, new EVs will only qualify for the standard 18% writing-down allowance, unless the government extends the scheme.

Second-hand fully electric cars
Purchasing a second-hand EV through your company is still tax-efficient, but the allowances are less generous. These cars qualify for the 18% writing-down allowance (WDA) per year, applied to the car’s cost on a reducing balance basis.

Cars with low emissions (1–50 g/km)
New or second-hand low-emission cars (up to 50 g/km) also only qualify for the 18% WDA, not the 100% FYA. This is one reason why fully electric (0 g/km) models remain the standout choice.

Ownership structure

• Outright purchase or hire purchase (HP): Both allow you to claim the capital allowance (FYA or WDA). Under HP, the company can also deduct the interest on repayments against corporation tax.
• Leasing: If the car is leased (rather than owned), you cannot claim capital allowances. Instead, the company deducts the monthly lease payments as an expense, reducing profits and corporation tax. VAT treatment on leasing is covered in a later section.

Key takeaway: For the 2025/26 tax year, buying a brand-new, fully electric car before March 2026 remains the sweet spot – you get the 100% FYA, low Benefit-in-Kind rates, and efficient running costs. After that, the allowances fall back to the standard 18% rate, making the timing of your purchase important.

UK Plug-in Car Grant and Other Incentives

The landscape of EV incentives has changed a lot in recent years, and some of the schemes mentioned in older guidance no longer exist. Here’s the up-to-date position for the 2025/26 tax year:

Electric Car Grant (replacing the old Plug-in Car Grant)

• The original Plug-in Car Grant (PICG) – which once offered up to £3,500 off EV purchases – ended in June 2022.
• In its place, a new Electric Car Grant was introduced in 2025, but it’s highly targeted. It only applies to EVs with a list price under £37,000 and from manufacturers meeting strict sustainability criteria.
• In practice, most qualifying cars currently receive a discount of around £1,500 at the point of sale. The maximum possible discount is £3,750, but no models have yet qualified for the full amount.
• Bottom line: check with your dealer whether the EV you’re considering qualifies. Popular affordable models from Nissan, Renault, and Vauxhall often do.

Home Charging Grants

• The old Electric Vehicle Homecharge Scheme (EVHS) ended in 2022.
• It’s been replaced by the EV Chargepoint Grant, which is only available to flat owners and renters. This provides up to £350 off installation of a home charging point.
• For homeowners in houses, there’s no grant support – you’ll need to fund your own charger installation.

Workplace Charging Scheme (WCS)

• Still active and extended through March 2026.
• Provides up to 75% of installation costs, capped at £350 per socket, with a maximum of 40 sockets per business.
• This is particularly useful if you want charging available at your business premises, either for your own use or for employees.

Capital Allowances

• As noted earlier, the 100% First Year Allowance (FYA) on new zero-emission cars remains available through 31 March 2026.
• This remains one of the strongest financial incentives for contractors and small companies purchasing an EV.

Taken together, these incentives can reduce the upfront and ongoing costs of running an electric car through your company – but the picture is more limited than a few years ago. The Workplace Charging Scheme and 100% FYA are still the most valuable tools available to contractors in 2025/26.but also provide ongoing financial benefits, making the transition to electric vehicles a smart move for any limited company.

Electric Car Grant (2025)

The old UK Plug-in Car Grant (PICG) – which once offered up to £3,500 off new EVs – ended in June 2022. It no longer applies to passenger cars.

In 2025, the government launched a new Electric Car Grant, but it is far more targeted:

• Eligibility: Only applies to electric cars with a list price under £37,000 from manufacturers that meet strict sustainability standards.
• Value: Most qualifying cars currently attract a £1,500 discount at the point of sale. The maximum grant is £3,750, but so far no models have qualified for the full amount.
• Qualifying cars: Typically, affordable mass-market models (e.g. Nissan Leaf, Renault Zoe, Vauxhall Corsa-e). High-value EVs such as Tesla models generally do not qualify.
• Other vehicles: Grants continue for certain categories like wheelchair-accessible vehicles, vans, taxis, mopeds, and trucks, each with their own criteria.

Always confirm with the dealer whether the vehicle you’re considering is eligible for the grant. Even a £1,500 saving can make a noticeable difference when running the numbers for your limited company.

Corporation Tax

When your company buys a fully electric car, the corporation tax saving comes through capital allowances.

• 100% First Year Allowance (FYA): Available on brand-new, fully electric cars (0 g/km CO₂) purchased up to 31 March 2026. This lets you deduct the full purchase price from taxable profits in the year of purchase.
• Corporation tax rates: Since April 2023, there are two main rates:
  • 19% for companies with profits up to £50,000 (small profits rate).
  • 25% for companies with profits above £250,000 (main rate), with marginal relief in between.

Example (2025/26):
If your company buys a new fully electric car for £35,000:

• At the 19% rate, the corporation tax saving is £6,650.
• At the 25% rate, the saving increases to £8,750.

Your company can also claim corporation tax relief on running costs such as insurance, servicing, and maintenance.

If or when the car is sold, the proceeds are treated as taxable income for the business and subject to corporation tax in that year.

Tax Relief and Allowances

Buying an electric car through your limited company provides several overlapping tax benefits:

• Capital allowances – Claim 100% FYA on brand-new, fully electric cars (until March 2026), or 18% writing-down allowance on second-hand EVs.
• Corporation tax relief – Running costs like insurance, servicing, and repairs are deductible. Interest on hire purchase (HP) agreements can also be claimed.
• Income tax relief – Employees benefit from low Benefit-in-Kind (BiK) rates. In 2025/26, the BiK rate for EVs is 3% of the car’s list price.
• National Insurance relief – Employer’s NI is payable at 13.8%, but since BiK values are low, the actual NI bill is modest. For example, a £40,000 EV has a BiK of £1,200, leading to just £166 in Employer’s NI for the year.

By combining these reliefs, electric cars remain one of the most tax-efficient company car options in 2025/26 — though the benefits are gradually tapering as incentives are scaled back.

VAT treatment on the purchase

VAT recovery depends almost entirely on whether the car is used exclusively for business purposes.

• Exclusively business use (rare)
  To reclaim 100% of the VAT on a car purchase, the vehicle must be used only for business. In practice, this usually means it’s a pool car – kept at the company premises, available for use by multiple employees, and not taken home. Ordinary commuting between home and work counts as personal use, so most company directors will not meet this strict test.
• Mixed personal and business use (most common)
  If there is any private use, you cannot reclaim any of the VAT on the purchase of the car. The flip side is that when the company eventually sells the car, it does not need to charge VAT on the sale.
• Leased company cars
  Leasing is treated differently:
  • VAT is normally charged on the monthly lease payments.
  • You can recover 50% of the VAT if there is mixed business and private use.
  • If the car is used exclusively for business (such as a genuine pool car), you can reclaim 100% of the VAT.

For most contractors and small companies, full VAT recovery is not possible on a company car purchase. Leasing often provides a more flexible option, since at least part of the VAT can be reclaimed even when there’s some personal use.

Employers National Insurance

Whenever a company car is provided for private use, the Benefit-in-Kind (BiK) value is not only taxable for the employee but also subject to Employer’s National Insurance (NI).

• The rate is 13.8% of the BiK value.
• Because electric cars have such a low BiK percentage, the actual NI cost for the company is modest.

Example (2025/26):

• A £40,000 fully electric car has a BiK value of £1,200 (3% of list price).
• Employer’s NI = 13.8% × £1,200 = £166 per year.

This is significantly lower than for petrol or diesel cars, where the BiK percentage can be as high as 37% of the list price – leading to far higher Employer’s NI costs.

Leasing and Salary Sacrifice

For many contractors and small companies, leasing or using a salary sacrifice scheme can be the most practical way to access an electric vehicle.

Leasing

• Lower upfront costs: Leasing avoids a large one-off capital spend, replacing it with predictable monthly rentals that are deductible against corporation tax.
• Flexibility: Lease agreements can be structured to fit mileage needs, contract length, and maintenance packages.
• VAT treatment: VAT is charged on monthly rentals, and your company can usually reclaim 50% of the VAT if there’s mixed business and personal use (or 100% if it’s a genuine pool car).

Salary sacrifice

• Salary sacrifice works well for employees on PAYE salaries, where part of gross salary is exchanged for a non-cash benefit (like a company EV). The car is then taxed only as a Benefit-in-Kind (BiK), which for EVs in 2025/26 is just 3% of list price.
• Because gross salary is reduced, both employee and employer save on income tax and National Insurance.

However, salary sacrifice is rarely relevant for small company contractors/directors. Most pay themselves a low salary (around £12,570) and take the rest as dividends. Since dividends cannot be sacrificed and reducing a minimal salary further makes little sense, salary sacrifice doesn’t deliver real benefits in this setup.

Environmental benefits

• Both leasing and salary sacrifice help make EVs more accessible without tying up company cash, while also cutting emissions and improving your business’s green credentials.

Key takeaway: For contractors running their own limited company, the focus should usually be on leasing or buying the EV through the company directly. Salary sacrifice is more useful for larger employers with PAYE staff, not one-person companies.

What does the company need to do to comply?

If your company provides a car that is available for private use (even occasionally), HMRC requires certain filings each year:

• P46(car): Used to notify HMRC when a company car is first provided to, or withdrawn from, an employee or director. This ensures HMRC updates the employee’s tax code correctly.
• P11D: Issued annually to employees and directors to report the Benefit-in-Kind (BiK) value of the car (and any other benefits provided). The company must also file a copy with HMRC.
• P11D(b): Submitted by the company to declare the total Class 1A National Insurance due on all BiKs provided. For cars, this is based on the BiK value at 13.8%.
• Payroll records: Although not always filed monthly, it’s best practice to maintain detailed records of the car’s list price, CO₂ rating, and usage, as HMRC may request them.

Tip: If you use an accountant or payroll provider, they can usually handle these submissions as part of your year-end process. But directors should still be aware of the forms, since penalties apply for late or incorrect filings.

Tax for the Employee

The Benefit-in-Kind (BiK) rate is what determines how much tax an employee or director pays for the private use of a company car. The BiK is calculated as a percentage of the car’s list price (P11D value), including any extras.

• In 2025/26, fully electric cars (0 g/km CO₂) have a BiK rate of 3%.
• This rises gradually to 4% in 2026/27 and 5% in 2027/28, but it remains very low compared to petrol and diesel cars (which can be taxed up to 37% of list price).

Example (2025/26):

• List price: £40,000
• BiK rate: 3%
• BiK value: £40,000 × 3% = £1,200
• If you’re a basic rate taxpayer (20%), the income tax payable is £240 (£1,200 × 20%).
• If you’re a higher rate taxpayer (40%), the income tax payable is £480.

The BiK value is added to your total taxable earnings, and tax is charged at your marginal rate. This will show up on your self-assessment tax return or be collected via PAYE if HMRC adjusts your tax code.

Even with the increase from 2% to 3% in 2025/26, the BiK for EVs remains exceptionally low compared to traditional cars, which is one of the main reasons EVs continue to be attractive as company cars.

A worked example

Car purchased in personal capacity; business use is expensed back to company.

Tom buys a car personally for £25,000 (using after-tax savings). During the year he drives 1,000 business miles.

• He can claim mileage back from his company at the HMRC-approved rate of 45p per mile.
• Claim = 1,000 × £0.45 = £450 reimbursed.
• Corporation tax saving for the company (at 19% small profits rate) = £85.50 (£450 × 19%).

Tom still bears the cost of buying and maintaining the car himself. There are no BiK charges or P11D issues, since the car is owned privately. However, remember Tom had to take £25,000 of post-tax income out of his company to fund the purchase in the first place.

Car purchased through the company (company is not VAT registered):

Super Ltd buys a brand-new, fully electric car for £25,000. The car has 0 g/km emissions.

(a) Corporation tax relief:

• At 19% rate → £25,000 × 19% = £4,750 tax saving (assume small profits rate)

(b) Benefit-in-Kind (BiK):

• 2025/26 BiK rate = 3%.
• BiK value = £25,000 × 3% = £750.
• If Sarah (the director) is a basic-rate taxpayer (20%), she pays £150 income tax on the BiK.

(c) Employer’s National Insurance:

• Employer’s NI = 13.8% × £750 = £104.

(d) Net company cost (Year 1):

• Car purchase: £25,000
• Plus Employer’s NI: £104
• Less corporation tax relief (19% rate): £4,763 (on £25,104) → Net = £20,341

Personal cost for Sarah: £150 tax in Year 1.

What it all means

1. Personal purchase
Tom buys a car in his own name for £25,000. He drives 1,000 business miles, so his company can reimburse him £450 tax-free (45p per mile). That only saves the company £85.50 in corporation tax (at 19%). Tom still pays the full £25k out of his after-tax income, and he’s on the hook for all the running costs. No BiK or P11D to worry about, but not very tax-efficient.

2. Company purchase
Super Ltd buys a new fully electric car for £25,000.

• Corporation tax saving: up to £6,250 (25% rate).
• BiK charge: just £750 (3% of list price). For a basic-rate taxpayer, that’s £150 tax.
• Employer’s NI: about £104.

Net cost to the company after tax relief: around £18,800–£20,300 depending on profit level. Sarah, the director, pays just £150 personally.

🚀 The difference is stark: a personal purchase gives only token tax relief, while a company-funded EV delivers a chunky corporation tax saving and only a tiny personal tax bill.