Everything You Need to Know About Tax Reliefs on EVs in the UK

The UK has set ambitious goals to achieve net-zero emissions by 2050, and one of the most significant contributors to this target is the adoption of electric vehicles (EVs). With the growing awareness of environmental impact, businesses are increasingly adopting EVs to reduce their carbon footprint. If your limited company is considering the purchase or lease of electric vehicles, there are a range of financial incentives and tax reliefs on EVs. These benefits can help your company reduce tax liabilities, improve cash flow, and make your operations more sustainable. Here’s a detailed overview of the key tax reliefs for limited companies purchasing EVs.

8 Must-Know Tax Reliefs on EVs for Businesses in the UK

1. Benefit-in-Kind (BIK) Tax Rates for Electric Vehicles

One of the primary incentives for businesses offering company cars to employees is the Benefit-in-Kind (BIK) tax, which applies to cars provided by employers for personal use, including commuting. EVs are significantly cheaper in terms of BIK tax than petrol or diesel cars, making them an attractive option.

BIK Rates for EVs

The UK Government has introduced very favourable BIK rates for electric vehicles:

• 2% for 2024–2025
• 3% for 2025–2026
• 4% for 2026–2027
• 5% for 2027–2028

In contrast, the BIK rate for petrol or diesel cars can be as high as 37%, depending on the CO₂ emissions of the vehicle. This means that businesses offering EVs to employees could see significant savings in terms of employee tax liabilities and company contributions.

Why This Matters:

• Low BIK rate directly reduces the cost for employees who are given company EVs.
• It allows businesses to offer attractive employee benefits without incurring significant tax costs.
• The low BIK rate is a major financial incentive to choose electric vehicles over traditional petrol or diesel cars.

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2. Capital Allowances for EV Purchases

Limited companies purchasing electric vehicles can benefit from 100% First Year Allowance (FYA), which allows businesses to claim the entire cost of a new zero-emission vehicle against their taxable profits in the first year of ownership.

How It Works:

• The company can write off the full cost of the electric car from its Corporation Tax bill.
• This tax relief is available for fully electric cars and extends to electric car charging points installed at employees’ homes.
• The Government announced an extension of this relief through the Autumn Budget 2024. The First Year Allowance (FYA) for zero-emission cars will now be available until March 31, 2027 for Corporation Tax purposes, covering expenditures from April 1, 2026. This extends the original claim period, strengthening incentives for businesses investing in zero-emission vehicles.

Key Details:

• FYA applies to cars purchased outright or via hire purchase agreements.
• Leased vehicles are not eligible for FYA.
• The sale of the vehicle after purchase will result in a Corporation Tax charge on the proceeds.

This is one of the most powerful electric car tax reliefs for businesses looking to make the switch to electric vehicles.

3. Corporation Tax and Lease Payments for Electric Vehicles

If your business opts to lease electric vehicles rather than purchasing them outright, the monthly lease payments are still tax-deductible. While leasing does not provide the full tax relief of the FYA, it can still offer significant financial benefits:

• Lease payments reduce taxable profits, thereby lowering your Corporation Tax liabilities.
• For leased electric vehicles, the VAT can be reclaimed at 50% on monthly lease payments.
• The VAT on leased vehicles cannot be reclaimed in full unless there is no private use, which is difficult to prove in most cases.

Leasing is an excellent option for businesses that want to avoid large upfront costs, and it provides ongoing tax relief over the term of the lease.

4. VAT Relief for Electric Vehicle Purchases and Leases

VAT on EV Purchases:

When purchasing an electric vehicle outright or via hire purchase, VAT on the purchase price can only be reclaimed if the vehicle is used exclusively for business purposes. Personal use, including commuting, is excluded.

If the vehicle is used for a combination of business and private purposes, VAT can only be reclaimed on the business portion of the usage.

VAT on Leased EVs:

For leased electric vehicles, businesses can claim 50% of the VAT on the lease payments. If the vehicle is used exclusively for business, 100% of the VAT on the lease payments can be reclaimed.

This makes electric vehicles an even more attractive option, reducing the overall VAT liability for businesses.

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5. Electric Vehicle Excise Duty (VED)

Electric vehicles were previously exempt from Vehicle Excise Duty (VED), the annual tax charged for driving a car on UK roads. This exemption ended in April 2025, and EVs are now subject to the standard VED rate applicable to all vehicles.

However, there is some good news for businesses purchasing electric cars:

• VED for EVs remains lower than for traditional petrol and diesel vehicles, reflecting their reduced environmental impact.
• The Expensive Car Supplement (ECS), which applies to cars costing over £40,000, will continue to apply to EVs. From April 2026, the threshold will increase to £50,000 for battery electric vehicles.
• Despite the introduction of VED, the VED for EVs is still set to be significantly lower than for petrol and diesel equivalents, helping to keep costs down.

6. Introduction of Mileage‑Based Charge (April 2028)

From April 2028, the UK Government plans to introduce a mileage‑based charge for electric vehicles in addition to VED:

• £0.03 per mile for battery electric cars
• £0.015 per mile for plug-in hybrid vehicles

This charge will increase in line with the Consumer Price Index (CPI) each year. For a typical EV driver with an average mileage of 8,500 miles per year, this charge is expected to amount to around £255 per year in 2028–29.

This new tax is expected to raise £1.1 billion in 2028–29, increasing to £1.9 billion by 2030–31.

7. Electric Vehicle Infrastructure and Charging Grants

The UK government offers several grants to businesses looking to install EV charging infrastructure at business premises or support staff and fleet charging:

Workplace Charging Scheme (WCS):

• Up to 75% of the installation costs for charge points at business premises can be covered.
• The maximum grant is £350 per socket, with a cap of 40 sockets.
• This scheme is aimed at SMEs, providing funding for multiple charge points.

EV Infrastructure Grants:

• These grants help offset the costs of installing EV charging points for staff and fleet use. This can significantly reduce the capital expenditure for businesses seeking to install multiple charging points.

8. Home Charging Point for Employees

If your company installs home charging points for employees using electric vehicles, the cost is not considered a taxable benefit as long as the vehicle is used for business purposes. This is a valuable tax benefit for businesses that provide staff with electric cars to help them contribute to net-zero emissions goals.

How Can EV Tax Planning Services Can Help

At Apex Accountants, we specialise in helping maximise tax reliefs for limited companies purchasing EVs. We offer expert guidance on:

• Capital allowances for EVs and infrastructure
• Tax-efficient leasing and purchase options for EVs
• VAT recovery strategies for electric vehicle purchases and leases
• Support in claiming government grants for EV charging infrastructure
• Tailored tax planning strategies for EV adoption
  

If you’re considering adding electric vehicles to your business, Apex Accountants can help you navigate the tax reliefs and provide strategic advice. Contact us today to learn how we can optimise your business’s EV tax planning.

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Call Anytime 0203 883 4777

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Conclusion

The UK offers several significant electric car tax reliefs for businesses purchasing electric vehicles, including low Benefit-in-Kind rates, capital allowances, and VAT reliefs. Additionally, grants and charging infrastructure support make it easier to transition to a sustainable fleet. By taking advantage of these reliefs, limited companies can reduce their tax liabilities, improve cash flow, and contribute to the UK’s ambitious net-zero goals.

FAQs on Tax Reliefs When Purchasing EVs

1. Is there tax relief on electric cars?

Yes, businesses purchasing electric cars can claim 100% First Year Allowance (FYA) for qualifying vehicles. This reduces Corporation Tax by allowing the full purchase price to be deducted.

2. Can you claim 100% VAT on an electric car lease?

No, VAT on an electric car lease can only be reclaimed at 50% unless the car is used exclusively for business purposes. Personal use, including commuting, restricts VAT recovery.

3. Can I offset the cost of an electric car against corporation tax?

Yes, if you purchase a new electric car outright, you can claim 100% First Year Allowance (FYA), allowing you to offset the full cost against your Corporation Tax in the first year.

4. What are the HMRC rates for electric cars?

HMRC applies a 2% Benefit-in-Kind (BIK) rate for electric cars in 2024–25, much lower than for petrol and diesel cars, reducing employee tax liabilities significantly for company-provided EVs.

5. Is VAT reclaimable on electric car purchases?

VAT can be reclaimed only if the electric car is used exclusively for business purposes. Personal use, including commuting, disqualifies the business from reclaiming VAT on the purchase price.