Millward, May & Co - Wokingham Accountants
Wokingham Accountants

Company - Electric Car

Electric Car

Should You Buy an Electric Car Through Your Limited Company?

Overview

For many years, the personal tax charge on petrol and diesel company cars made it unattractive to buy a car through a limited company. However, thanks to generous tax breaks, electric vehicles (EVs) currently offer a very tax-efficient option — particularly if:

  • You lease cars every 3–4 years,

  • Your company is VAT registered, and

  • You're a higher-rate taxpayer.

However, the tax benefits are gradually reducing. Here are the upcoming Benefit-in-Kind (BIK) rates for fully electric vehicles (tax year & BIK rates are shown below):

  • 2025-26 3%

  • 2026-27 4%

  • 2027-28 5%

  • 2028-29 7%

  • 2029-30 9%

As a very rough guide, when the BIK rate hits 10% or more, it may be more tax-efficient to buy the vehicle personally — although this will always depend on individual circumstances.

Key Considerations

🧾 VAT Registration

If your business is VAT registered, here’s how VAT works depending on how you acquire the car:

🚗 Leased Vehicle

  • You can reclaim 50% of the VAT on monthly lease payments

  • You can reclaim 100% of the VAT on running costs (e.g. servicing, repairs, parts, charging costs)

  • This makes leasing a more VAT-efficient option for many businesses

🚘 Purchased Vehicle (outright or via finance such as hire purchase)

  • No VAT can be reclaimed on the purchase price of the car (unless you're a taxi driver or driving instructor)

  • You can still reclaim 100% of the VAT on running costs

💡 Therefore, it often makes more sense to lease a vehicle rather than purchase it outright, as you can reclaim more VAT.

✅ Purchase v Lease

Whether you buy or lease the car through the business, you can claim the following expenses:

  • Servicing & repairs

  • MOT

  • Road fund licence

  • Insurance

  • Electric charger (home or work-based)

  • Class 1A National Insurance on BIK

  • Charging & reimbursement - you can either:

    • Claim electricity costs if charging can be separately identified (e.g. using your home/work based charger or at a public charge point). This method allows you to also claim for non-business related electricity costs but HMRC’s mileage rates may be more beneficial than the cost of charging at home.

    • Use HMRC mileage rates for any business travel — see advisory fuel rates: www.gov.uk/guidance/advisory-fuel-rates

🚘 If You Purchase

If you buy a new or second hand EV, you’ll get exactly the same tax relief. The only difference is, when buying a new EV, you’ll get the tax relief sooner.

New Electric Vehicle

  • You can claim 100% of the cost of a new electric vehicle in the first year to reduce your corporation tax profits.

  • However, when you sell the car, the sale proceeds become taxable — you pay corporation tax on the amount you sell it for.

🔎 Example: Buy new EV for £60,000

  • Claim 100% in the first year → £60,000 corporation tax profit deduction

  • Sell later for £30,000 → pay corporation tax on £30,000

Second-Hand Electric Vehicle

  • You can claim 18% per year on a reducing balance basis (this spreads the relief over several years).

  • When you sell the vehicle, depending on the tax deducted value on your books, you either claim an additional tax deduction or you pay additional tax.

🔎 Example 1: Buy second-hand EV for £60,000 and sell for £30,000

  • Claim £10,800 in Year 1 → book value is now £49,200

  • Sell for £30,000

  • Additional tax deduction = £19,200 (i.e. £60,000 – £10,800 – £30,000)

🔎 Example 2: Buy second-hand EV for £60,000 and sell for £50,000

  • Claim £10,800 in Year 1 → book value is now £49,200

  • Sell for £50,000 → pay corporation tax on £800

Other Costs

  • Loan/Hire Purchase interest is claimable

  • VAT is not recoverable on car purchase unless you are a driving instructor or taxi operator

🚗 If You Lease

  • Monthly lease payments are fully deductible for corporation tax

  • VAT-registered businesses can reclaim 50% of VAT on lease payments (e.g. if you pay £600 = £500 Net + £100 VAT per month, you’ll be able to claim £50 per month in VAT).

  • No tax due on selling issues, and easier to upgrade every few years

🧾 Personal Tax (BIK)

A company car is a taxable benefit — the amount added to your personal income is calculated as:

List Price × BIK Rate

  • Example (2025–26):

  • £60,000 × 3% = £1,800 taxable benefit

  • Tax @ 40% (higher rate): £720 personal tax

  • Company pays Class 1A NI: £270 (15% of £1,800)

This is reported annually on a P11D form, which we submit on your behalf.

BIK Calculations are always based on the manufacturer's list price, not what you actually paid. This figure does not decrease over time, so BIK remains high even if the car reduces in value.

📊 Accountancy Fees

We currently charge a fixed fee of £270 + VAT per year (plus £20+VAT per additional P11D) to:

  • Prepare the P11D form(s)

  • Advise on EV tax treatment

  • Handle HMRC compliance

⚠️ Other Considerations

Insurance

  • Commercial car insurance is usually required and can be more expensive

  • It may affect your personal no claims bonus

  • We recommend obtaining quotes before purchase

  • Sometimes it make sense to pay for this personally

  • For multiple company vehicles, fleet insurance may offer better value.

Ownership & Admin

  • Car must be purchased in the company name (some dealers may charge more for this)

  • If the company closes, unwinding vehicle ownership can be costly

  • It’s much simpler administratively to own the car personally and claim mileage

Disclaimer: This guidance is based on information available at 30 June 2025 and is not intended to be relied upon for any means. Millward, May & Co do not take responsibility for decisions made as a result of this information or for any mistakes within. If you are a client of ours, please speak to us so we can give you advice based on your specific circumstances.