For women running small businesses, switching to an electric vehicle (EV) can cut your company car tax bill, but the rules have changed sharply since 2024. For 2026-27, zero-emission cars still attract low Benefit-in-Kind (BiK) rates, yet Vehicle Excise Duty (VED) exemptions have ended and 100% first-year capital allowances have closed to new claims. This guide sets out the electric vehicle tax benefits that still apply to UK businesses in 2026-27, the figures you need, and the traps to avoid. For a broader view of self-employed tax obligations, see our Self Employed Tax UK: A Complete Guide for 2026/27.
1. Lower Benefit-in-Kind tax on zero-emission company cars
The biggest electric vehicle tax benefit is the low BiK rate. For the 2026-27 tax year, HMRC charges just 4% of the car’s list price for a fully electric company car, according to the gov.uk company car tax guidance for 2026-27. By contrast, petrol cars start at 15% and rise to 37% depending on CO2 emissions.
For a £40,000 electric company car, the taxable BiK value in 2026-27 is £1,600. A higher-rate taxpayer pays £640 in income tax. The same-priced petrol car emitting 130g/km CO2 would attract a 30% BiK rate, creating a taxable benefit of £12,000 and a £4,800 tax bill.
2. Reduced capital allowances from April 2025
Until 31 March 2025, companies could claim a 100% first-year allowance (FYA) on new and unused zero-emission cars. That full upfront deduction has now ended. From April 2025, zero-emission cars join the main rate pool and qualify for 18% writing down allowances each year, HMRC confirmed in its 2025 capital allowances guidance.
Petrol or diesel cars with CO2 emissions up to 50g/km also qualify for the 18% main rate. Cars emitting more than 50g/km fall into the special rate pool at just 6% a year. EVs still depreciate faster for tax purposes than higher-emission cars, but the 100% FYA is no longer available.
3. End of free Vehicle Excise Duty for EVs
A major change took effect on 1 April 2025. Pure electric vehicles are no longer exempt from VED. According to the gov.uk VED rate tables published in 2025, zero-emission cars registered before 1 April 2025 now pay the £195 standard annual rate. New zero-emission cars registered on or after 1 April 2025 pay £10 in the first year, then £195 each year thereafter.
This removes one of the headline savings for businesses, but EVs still sit in the lowest VED band. The comparable standard rate for a petrol or diesel car is also £195 for most vehicles, so the EV advantage has narrowed rather than disappeared.
4. Tax-efficient salary sacrifice schemes
Salary sacrifice lets employees give up part of their gross salary in exchange for a company car. Because the BiK rate for EVs is only 4% in 2026-27, the arrangement is still attractive. The employee saves income tax and Class 1 National Insurance on the sacrificed salary, while the employer saves Class 1 employer NICs. For women-led businesses competing for staff without large pay rises, this can be a useful recruitment and retention tool.
The saving works best for basic-rate taxpayers choosing lower-priced EVs. Once the BiK rate rises to 5% in 2027-28, the maths will shift slightly, so businesses reviewing schemes in 2026 should model costs for the full lease term.
5. Lower employer National Insurance on company car benefits
Employers pay Class 1A NICs on the BiK value of company cars. With a 4% BiK rate on an EV, the employer’s NIC bill is far lower than for a petrol equivalent. For example, on a £40,000 EV the employer pays Class 1A NICs on a BiK value of £1,600. On a £40,000 petrol car with a 30% BiK rate, the employer pays NICs on £12,000.
6. VAT recovery follows normal business-use rules
There is no blanket VAT exemption or enhanced recovery for electric cars. VAT recovery depends on use:
- Cars: Input VAT on purchase is blocked unless the car is used exclusively for business, such as a taxi or driving school car.
- Leased cars: If there is any private use, only 50% of the VAT on lease rentals can be reclaimed. If the car is 100% business use, 100% recovery applies.
- Commercial vehicles: Vans and lorries used for business can recover VAT in full, including electric vans.
Keep a mileage log if you want to support a claim for 100% business use. HMRC can challenge VAT recovery without adequate records. Our Allowable Expenses Self Employed UK guide explains what records you need.
7. Workplace charging as a non-taxable benefit
Electricity provided by an employer for charging an employee’s own EV at the workplace is not treated as a taxable benefit, HMRC guidance states. This applies whether the car is a company car or the employee’s private vehicle, provided charging facilities are available to all employees at or near the workplace.
If an employer pays for charging at a public point using a company account or card, that is also not a taxable benefit. The same does not apply to petrol or diesel fuel, which triggers a fuel benefit charge when paid for by the employer for private use.
8. Advisory electric rates for business mileage
When employees use their own electric car for business travel, employers can reimburse them using HMRC’s advisory electric rate. From 1 June 2025, HMRC set this at 8p per mile, according to the gov.uk advisory fuel rates page. Payments at or below this rate are tax-free; anything above is treated as taxable earnings. Check gov.uk for the latest rate, as HMRC reviews it quarterly.
For company-owned EVs, the same rate can be used to reimburse employees for business mileage without creating a taxable benefit.
9. Deductible leasing costs for business use
For leased electric cars used wholly and exclusively for business, the rental payments are deductible against corporation tax or income tax. If the car has CO2 emissions of 50g/km or less, including all pure EVs, the full lease cost is allowable. Cars emitting more than 50g/km have a 15% disallowance on the lease rental deduction.
For women founders managing tight cash flow, leasing can offer more predictable monthly outgoings than an outright purchase. If you run a limited company, our guide on How to Pay Yourself as a Limited Company Director in 2026 covers how company profits, dividends and expenses interact.
10. Ended grants and remaining charging support
The Plug-in Car Grant closed to new orders on 14 June 2022, so it should no longer feature in purchase decisions. Some targeted schemes remain, such as the Workplace Charging Scheme, which offers support for installing EV charge points for staff and fleets. Check gov.uk grants for low-emission vehicles for current availability and eligibility.
How electric vehicle tax benefits compare in 2026-27
| Cost | Electric car | Petrol car (130g/km CO2) |
|---|---|---|
| BiK rate | 4% | 30% |
| BiK on £40,000 list price | £1,600 | £12,000 |
| Higher-rate taxpayer cost | £640 | £4,800 |
| VED standard rate | £195 | £195 |
| Capital allowances | 18% main rate WDA | 18% or 6% WDA |
Practical next steps for your business
- Check HMRC’s 2026-27 company car tax tables before signing any lease or purchase agreement.
- Model the total cost over three to four years, including BiK, employer NICs, VED, insurance, and charging infrastructure.
- Decide whether to buy or lease based on cash flow and capital allowance timing.
- Keep mileage records if you plan to reclaim VAT or pay business mileage.
- Review salary sacrifice arrangements before the BiK rate rises to 5% in 2027-28.
What electric vehicle tax benefits mean for you
Electric vehicle tax benefits for UK businesses are still meaningful in 2026-27, especially through low BiK rates and salary sacrifice savings. However, the removal of VED exemptions and the end of 100% first-year capital allowances mean the financial case needs recalculating. For women running businesses, the key is to compare the whole-life cost of an EV against a petrol or diesel equivalent, using current HMRC figures, rather than relying on older headlines.
