Whether to invest in electric vehicles (EVs) for company cars remains an important consideration for businesses. The overriding view for some time has been that they are a good investment and remain a tax-efficient option compared with petrol and diesel alternatives.
It is worth understanding the detail, however, and being aware that the tax position is changing, with EVs set to face some additional costs over the next few years.
What is changing in terms of tax rates?
The current low benefit-in-kind rate of 4% for the 2026-27 tax year is due to increase each year, reaching 9% in 2029-30. This remains favourable compared with rates of up to 37% for higher-emission cars.
Businesses purchasing new electric cars can also qualify for 100% first-year capital allowances. This means the full cost of a qualifying new electric car can be claimed as a tax deduction in the year of purchase, rather than the relief being spread over several years. Petrol and diesel cars do not qualify for this relief, with the rate of capital allowances instead depending on the vehicle’s emissions.
This favourable relief is currently due to end after 31 March 2027, although it remains to be seen whether the Government will extend it again at October’s Budget.
Vehicle Excise Duty
Electric cars are no longer exempt from Vehicle Excise Duty (VED) and are now subject to the same broad regime as petrol and diesel cars.
From April 2028, a new mileage-based Electric Vehicle Excise Duty (eVED) will also apply. Fully electric cars will be subject to a charge of 3p per mile, while plug-in hybrids will pay 1.5p per mile, in addition to existing VED.
For businesses operating electric vehicles, this will introduce an additional running cost to consider, particularly where vehicles cover higher annual mileages.
Expensive Car Supplement
Expensive zero-emission cars became liable for the VED Expensive Car Supplement from April 2025. From 1 April 2026, the supplement threshold for zero-emission cars increased from £40,000 to £50,000.
The annual surcharge is £425 and applies for five years, from the second to the sixth year after first registration, where the vehicle’s list price exceeds the relevant threshold.
How M+A Partners can help
EVs can still offer significant tax advantages compared with petrol and diesel vehicles, particularly when considering company car benefit-in-kind rates and capital allowances. However, the tax position is changing, so businesses should consider the wider costs and tax implications when deciding which vehicles to provide or purchase.
Our factsheet covers the tax treatment of EVs in more detail, including charging points for electric cars, hybrids and electric company vans.
If you are considering introducing or replacing electric vehicles within your business and would like to understand the tax implications, please get in touch with your usual M+A Partners’ adviser or our experts below.