Company Car Benefit-in-Kind Rates – Secured Until 2030
One of the biggest incentives for offering company cars to employees is the company car benefit-in-kind (BIK) rates, which have been exceptionally generous for electric vehicles.
The current BIK rate for fully electric cars is 3% for 2025–26. Importantly, these rates are now secured until April 2030, with gradual increases to 4% in 2026–27, 5% in 2027–28, and then rising to 9% by 2029–30. Compare this to petrol and diesel cars, which can reach as high as 37%, and the advantage is clear.
This means you can offer employees an electric vehicle while keeping their taxable benefit significantly lower than traditional fuel options – supporting both your environmental commitments and the UK’s net-zero goals.
Capital Allowances: The 100% First Year Allowance
Here’s where the real tax benefit lies. If your company purchases a brand new, fully electric car, you can claim a 100% First Year Allowance (FYA) against your Corporation Tax bill in the year of purchase.
This also applies to charging stations installed at an employee’s home address, making it a genuinely comprehensive relief.
The government has now confirmed this relief will be extended for a further year, so the favourable treatment continues beyond the original March 2026 deadline.
FYAs are available whether the company owns the vehicle outright or acquires it via hire purchase. However, they’re not available on leased vehicles (including PCP-style agreements). When you eventually sell the vehicle, any sale proceeds will be subject to Corporation Tax.
Commercial vehicles continue to qualify for 100% allowances under the Annual Investment Allowance, offering further flexibility for businesses with fleet requirements.
Three Ways to Finance – And How Each Is Taxed
Leasing Your EV
If you lease an electric car, the monthly rentals are treated as an allowable business expense, directly reducing your taxable profits and Corporation Tax bill.
For VAT purposes, you can reclaim 50% of the VAT on lease payments – a worthwhile consideration when budgeting.
Hire Purchase
Hire purchase offers a middle ground. You still benefit from the 100% FYA, and you can deduct the interest element of your monthly payments for Corporation Tax purposes. This makes it more tax-efficient than a simple lease while still allowing capital allowances.
Outright Purchase
Purchase the vehicle outright and you get the full 100% FYA benefit. However, VAT can only be reclaimed if the vehicle is used exclusively for business purposes. Commuting doesn’t count as business use – so if there’s any personal use, VAT recovery won’t be available. This is an important distinction worth getting right.
Benefit-in-Kind: Taxing the Personal Benefit
A benefit-in-kind arises whenever an employee has any personal use of a company car. For fully electric cars, the BIK rates are:
- 2025–26: 3% of the list price
- 2026–27: 4% of the list price
- 2027–28: 5% of the list price
- 2028–29 onwards: Rising to 9% by 2029–30
The tax cost falls on both employer and employee:
- Employer: List price × BIK rate × 15% (employer’s National Insurance Contribution)
- Employee: List price × BIK rate × employee’s marginal income tax rate
There’s a helpful relief here: the installation of a home charging point for a company car is not treated as a taxable benefit, even though it clearly benefits employees personally.
Vehicle Excise Duty: Current Position and Future Changes
From April 2025, electric cars are subject to standard Vehicle Excise Duty (VED) like other vehicles and are no longer exempt.
The expensive car supplement (ECS) – an additional charge for vehicles originally costing more than £40,000 – applies for the first five years from the start of the second licence. However, there’s positive news: from April 2026, the ECS threshold for battery electric cars increases to £50,000. This is a significant relief that takes approximately 51% of all new EVs out of the tax, up from 37% when it was set at £40,000.
For an EV purchased in 2025–26 with a list price between £40,000 and £50,000, this change will save approximately £2,050 over five years (£410 × 5 years).
A Major Change Coming in 2028: The Mileage-Based Tax
This is the significant development you need to be aware of. From April 2028, a new mileage-based road tax (called eVED – electric Vehicle Excise Duty) will be introduced. This will be charged at 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrids. This charge sits on top of the standard VED, not instead of it.
For a typical driver covering 8,500 miles annually, this would add approximately £255–£260 per year to running costs. The government has positioned this at roughly half the fuel duty rate paid by petrol and diesel cars, but it’s still a material increase in the cost of ownership.
This has timing implications for purchase decisions. Vehicles delivered before April 2028 are likely to be grandfathered and exempt from this future charge – worth factoring into your planning if you’re considering a purchase now.
Electricity: A Tax-Efficient Benefit
Electricity provided for company car drivers is not treated as a benefit-in-kind where the journey is for business use. This applies whether the company pays for charging directly or reimburses employees.
Employers can either reimburse charging costs claimed by employees or pay for all charging and recover the cost of private mileage (including commuting) through payroll deduction. Either way, electricity costs are fully tax-deductible for the company.
Grants and Support
Several grants remain available and have been significantly boosted:
- Electric Car Grant – Up to £3,750 off eligible EV models priced under £37,000. The scheme has been expanded with an additional £1.3 billion in funding and will now run until 2029–30, making it a worthwhile consideration for purchase timing
- EV infrastructure grant for staff and fleets (for SMEs) – Contributes towards the cost of installing multiple charge points
- Workplace Charging Scheme grant – Provides support for installing charge points at business premises
These combined measures represent substantial government support for electrification.
What’s Right for Your Business?
The tax treatment of electric vehicles remains highly favourable – but the optimal approach depends on your specific circumstances. Are you looking to offer employee benefits, develop a fleet, or both? Will the vehicle be used exclusively for business, or is there personal use? How long do you plan to keep it?
The introduction of the mileage-based tax from 2028 also deserves consideration. If you’re thinking about a company car purchase in the next few years, acting before April 2028 could mean grandfathering your vehicle out of that future charge – though this still requires confirmation from HMRC on the detail.
The answers to these questions will determine whether outright purchase, hire purchase, or leasing makes the most sense for your company.
If you’re considering an electric vehicle for your business, we’d recommend discussing your options with us. We can model the tax position for your specific situation, consider the 2028 mileage tax implications, and help you make the most of these reliefs while they remain in their current form.