16. October 2026

Electric Company Cars: Tax, VAT and Charging Costs Explained

Article written by PR Accountants LTD in the category General Advice

Electric company cars remain one of the most attractive benefits that a UK company can provide to a director or employee.

The low benefit in kind percentage can make an electric car considerably more tax-efficient than a petrol or diesel company car. A company buying a qualifying new and unused zero-emission car may also be able to claim a 100% first-year capital allowance.

Those advantages are real, but they do not mean that every electric company car produces the same result.

The overall cost depends on:

The car's list price
Whether the company buys or leases it
Whether the car is new or used
The company's Corporation Tax position
Whether VAT can be recovered
How the car is charged
Who pays for private and business electricity
The director's or employee's tax rate
The length and terms of any finance or salary sacrifice agreement
Expected mileage and likely resale value

VAT is particularly easy to misunderstand. A fully electric car may qualify for favourable Corporation Tax treatment while the VAT on its purchase remains blocked. Tax relief and VAT recovery are separate tests.

This guide explains the main UK tax, VAT and charging-cost rules for fully electric company cars in the 2026/27 tax year. It is written primarily for limited-company directors and employers, but it also highlights the rules that affect employees using their own electric cars for work.

The short answer

For 2026/27, a fully electric company car with zero CO2 emissions is generally taxed as a benefit in kind at 4% of its taxable list price.

The employee pays Income Tax on that benefit. The employer normally pays Class 1A National Insurance at 15% of the benefit value.

A new and unused zero-emission car bought by a company before 1 April 2027 can normally qualify for a 100% first-year capital allowance. A second-hand electric car does not qualify for that allowance and will usually receive writing-down allowances instead.

VAT on the purchase of a car is normally blocked if the car is available for any private use. This applies even when the car is fully electric. Leasing often allows a VAT-registered business to recover 50% of the VAT on the lease rental, subject to the normal rules.

For a fully electric company car, employer-funded charging normally does not create a separate fuel benefit charge. However, the VAT and reimbursement rules depend on where the charging takes place and who receives the electricity supply.

The result can still be highly tax-efficient, but the decision should be based on the total cost rather than the benefit rate alone.

What is an electric company car?

An electric company car is a car owned or leased by an employer and made available to a director or employee.

If the individual, or a member of their family or household, is allowed to use the car privately, a taxable company car benefit will normally arise. Private use includes ordinary commuting between home and a permanent workplace.

This article focuses on battery electric cars with zero CO2 emissions.

A plug-in hybrid is not treated in exactly the same way. Its benefit percentage depends on its CO2 emissions and, where relevant, its official electric range. A car marketed as electrified, hybrid or self-charging is not automatically a zero-emission car for company car tax purposes.

The registration document, certificate of conformity, lease information and HMRC company car calculator should be checked before assuming which percentage applies.

Why electric company cars remain attractive in 2026/27

The main attraction is the gap between the benefit percentage for a zero-emission car and the percentage that can apply to a higher-emission vehicle.

For 2026/27, the appropriate percentage for a zero-emission company car is 4%.

That percentage is applied to the car's taxable value. The taxable value is based broadly on the manufacturer's list price, including VAT and relevant accessories, rather than the amount the company actually paid.

This distinction matters. A company may negotiate a substantial discount, buy through a fleet arrangement or obtain a pre-registered vehicle at a reduced price. The company car benefit is not normally calculated from that discounted purchase price.

The low percentage can nevertheless produce a modest annual benefit compared with the value of the car provided.

Other potential advantages include:

A possible 100% first-year capital allowance for a qualifying new and unused zero-emission car
No separate car fuel benefit charge on electricity for an employer-owned or employer-leased fully electric car
Potential VAT recovery on part of the cost where the car is leased
Tax-favoured salary sacrifice treatment for qualifying low-emission cars
Lower energy costs where charging can be managed efficiently
Workplace charging exemptions where the conditions are met

These advantages should be compared with finance costs, insurance, depreciation, charging infrastructure, Vehicle Excise Duty and the administrative work involved.

How the electric company car benefit is calculated

The basic calculation is:

Taxable value of the car multiplied by the appropriate percentage.

For a zero-emission electric car in 2026/27, the appropriate percentage is 4%.

The resulting figure is the cash equivalent of the car benefit for a full tax year, before any valid adjustment for availability or qualifying employee payments.

What value is used?

The calculation generally starts with the car's UK list price when new.

The taxable value can include:

VAT
Delivery charges included within the relevant list price rules
The battery, even if it is priced or leased separately
Factory-fitted options
Certain accessories added later

It is not normally reduced simply because:

The company received a discount
The car was bought second hand
The vehicle has fallen in market value
The company used hire purchase or another finance arrangement
The car has high mileage

An employee capital contribution towards the car or qualifying accessories may reduce the price used in the benefit calculation, subject to a maximum reduction of £5,000. A properly structured payment for private use can also reduce the benefit, but the agreement and timing must satisfy the relevant rules.

Worked example: £50,000 electric car

Assume a company provides a fully electric car throughout 2026/27.

The taxable list price, including relevant accessories, is £50,000.

The company car benefit is:

£50,000 multiplied by 4%
Annual taxable benefit: £2,000

The director's or employee's Income Tax cost would be:

£400 for a basic-rate taxpayer at 20%
£800 for a higher-rate taxpayer at 40%
£900 for an additional-rate taxpayer at 45%

The employer's Class 1A National Insurance would normally be:

£2,000 multiplied by 15%
Employer Class 1A National Insurance: £300

These figures assume the car is available for the whole tax year, no qualifying employee contribution applies and the individual's marginal Income Tax rate remains as shown.

The employee does not pay the £2,000 benefit to HMRC. They pay Income Tax on the £2,000 benefit.

Worked example: £80,000 electric car

If the taxable list price is £80,000, the 2026/27 benefit is:

£80,000 multiplied by 4%
Annual taxable benefit: £3,200

A 40% taxpayer would pay £1,280 of Income Tax. The employer would normally pay £480 of Class 1A National Insurance.

The low percentage does not make list price irrelevant. A more expensive car still produces a larger taxable benefit, higher employer National Insurance and potentially higher finance, insurance and Vehicle Excise Duty costs.

Private use includes commuting

A common misunderstanding is that a car becomes business-only because it is used to visit clients, sites or rental properties.

That is not the test.

If the director or employee can use the car privately, a company car benefit will usually arise. Ordinary commuting between home and a permanent workplace counts as private travel.

The benefit can arise even if private mileage is low. Availability is normally more important than the number of private miles actually driven.

A written statement that the car is for business use only will not by itself remove the benefit. The employer must prohibit private use and take reasonable steps to check that the restriction is followed.

This is especially important for owner-directors. If the car is kept at the director's home and the director controls the company, it can be difficult to show convincingly that private use was genuinely prohibited unless the facts and controls support that position.

When can the benefit be reduced?

The company car benefit may be adjusted in limited circumstances.

The car is unavailable for part of the year

An adjustment may be available when the car is not available for a qualifying period. Short periods when the car is in a garage will not necessarily count.

The rules on availability contain detailed conditions. The company should record the date the car first became available, the date it ceased to be available and the reason for any period of unavailability.

The employee makes a capital contribution

A qualifying capital contribution by the employee towards the provision of the car or accessories can reduce the taxable price, up to the statutory maximum of £5,000.

This is different from paying towards monthly running costs.

The employee pays for private use

A payment that the employee is required to make specifically for private use may reduce the benefit. The requirement should be set out clearly and the payment must be made within the relevant time limit.

A voluntary payment or an amount described vaguely as a contribution may not receive the intended treatment.

Before asking a director to contribute, the company should compare the tax saved with the cash paid personally. A contribution is not automatically beneficial simply because it reduces the reported benefit.

What happens to the benefit rate after 2026/27?

The low electric-car percentage is increasing gradually.

The published zero-emission company car percentages are:

4% for 2026/27
5% for 2027/28
7% for 2028/29
9% for 2029/30

A lease entered into now may run across several of these tax years. The future benefit cost should therefore be modelled using the scheduled percentages rather than assuming that the 2026/27 rate will apply throughout the contract.

For example, a four-year lease may look attractive when assessed only at 4%. The later-year tax cost will be higher even if the car and monthly lease payment do not change.

The percentage is only one changing cost. Vehicle Excise Duty, advisory electricity rates, insurance and charging tariffs may also change during the ownership or lease period.

Employer Class 1A National Insurance

The company normally pays Class 1A National Insurance on the taxable car benefit.

The Class 1A rate for 2026/27 is 15%.

Using the £50,000 electric car example, the annual benefit is £2,000 and the Class 1A National Insurance cost is £300.

This employer cost should be included in the total-cost comparison. It is much lower than the cost that can arise on a high-emission company car, but it is not zero.

Class 1A National Insurance is generally deductible when calculating the employer's taxable trading profit, subject to the normal rules.

Reporting the company car

The employer must report the car correctly and operate the required tax process.

For 2026/27, the car benefit may be dealt with through voluntary payrolling where the employer registered in time, or through the end-of-year benefits process where it is not payrolled.

Where P11D reporting applies, expenses and benefits are normally reported by 6 July following the end of the tax year. The P11D(b) reports the employer's Class 1A National Insurance liability. Electronic payment of Class 1A National Insurance is normally due by 22 July, or 19 July where payment is made by post.

The government has confirmed that mandatory payrolling will apply to company cars, car fuel, vans, van fuel and employer-provided medical benefits from April 2027.

Employers should therefore make sure their payroll software and vehicle records can support real-time reporting before the 2027/28 tax year begins.

Records should include:

Make and model
Registration number
Date first registered
CO2 emissions
Electric range where relevant
List price and accessories
Date made available
Date withdrawn
Employee capital contribution
Required private-use payments
Periods of unavailability
Charging and mileage arrangements

Can the company claim Corporation Tax relief on the car?

The company may receive tax relief, but the form and timing of that relief depend on how it acquires the car.

Buying, hire purchase and leasing do not produce identical tax treatment.

Buying a new and unused electric car

A new and unused zero-emission car can qualify for a 100% first-year capital allowance if the qualifying expenditure is incurred within the current statutory period.

For companies, the current allowance is available for qualifying expenditure incurred up to 31 March 2027.

This can allow the company to deduct the qualifying cost when calculating taxable profits for the period of acquisition.

The tax saved is not necessarily 25% of the cost.

For the financial year beginning 1 April 2026:

The small profits Corporation Tax rate is 19%
The main rate is 25%
Marginal relief can apply between the relevant limits
The limits can be reduced where the company has associated companies or a short accounting period

The value of the allowance therefore depends on the company's profits, associated companies, accounting period and other claims.

Worked example: buying a new electric car

Assume a company buys a qualifying new and unused zero-emission car for £60,000, including VAT that cannot be recovered.

If the whole £60,000 qualifies for the 100% first-year allowance, the company may deduct £60,000 when calculating its taxable profits.

At a 19% Corporation Tax rate, the potential tax reduction is £11,400.

At a 25% Corporation Tax rate, the potential tax reduction is £15,000.

This is a timing and tax-relief benefit, not a cash discount from the dealership. The company still has to fund the car.

The claim may also create or increase a tax loss. Whether that loss can be used immediately depends on the company's wider circumstances.

If the car is later sold, the disposal proceeds will normally affect the capital allowance calculation. The initial relief should not be viewed in isolation from the eventual disposal.

Buying a second-hand electric car

A second-hand electric car does not qualify for the 100% first-year allowance for new and unused cars.

It will normally qualify for main-rate writing-down allowances instead. The main writing-down allowance rate for relevant expenditure from April 2026 is 14% on a reducing-balance basis.

This creates a different cashflow result.

For example, if a company buys a used electric car for £30,000 and claims a 14% writing-down allowance, the first annual allowance may be £4,200 before any relevant time apportionment or other adjustment.

At a 25% Corporation Tax rate, that £4,200 allowance would reduce tax by £1,050.

The used vehicle may cost much less to buy, but the tax relief is normally obtained more slowly. The commercial saving from buying used should be compared with the timing of tax relief, battery condition, warranty and likely resale value.

Hire purchase

Hire purchase can allow the company to claim capital allowances where it is treated as acquiring the car, even though payments are spread over time.

The interest and finance charges are normally considered separately from the capital cost. The precise accounting and tax treatment depends on the agreement.

Do not assume that every product described as vehicle finance is hire purchase. A personal contract purchase, lease purchase, contract hire and hire purchase agreement can have different legal and tax consequences.

The agreement should be reviewed before it is signed, not after the year-end accounts are prepared.

Leasing an electric car

Where the arrangement is a genuine lease, the company does not normally claim capital allowances on the car itself. It will usually claim a deduction for allowable lease rentals through its accounts.

The tax deduction follows the accounting and tax rules for the arrangement.

A 15% lease rental restriction can apply to certain higher-emission cars. It generally applies to cars with CO2 emissions above 50g/km under the current rules, so it should not normally restrict the rentals for a zero-emission electric car.

Upfront rentals, maintenance packages, administration fees, excess mileage charges and termination payments can affect the true cost. A low advertised monthly payment may be supported by a substantial initial rental.

VAT on buying an electric company car

The fact that a car is electric does not remove the normal VAT block on cars.

As a general rule, a VAT-registered business cannot recover VAT on the purchase of a car that is available for private use.

This is one of the most common electric-vehicle tax mistakes.

A director may say that the car is bought for business, used to visit clients and paid for by the company. Those facts do not establish full VAT recovery.

To recover the VAT under the exclusive-business-use exception, the car must be used only for business journeys and must not be available for private use. The company needs more than an intention that private use will be limited.

HMRC will consider whether private use is genuinely prohibited and whether the prohibition is enforced.

Factors that can weaken a claim include:

The car is allocated to one director
The car is kept at the director's home
The keys are freely available outside working hours
The insurance permits unrestricted personal use
There is no written prohibition
There are no mileage records
The director controls the company and the supposed restriction is not independently monitored

Ordinary commuting is private use for this purpose.

When can purchase VAT be recovered?

Full VAT recovery may be possible in limited situations, including where a qualifying car is:

Bought exclusively for business use and not made available for private use
Bought primarily for use as a taxi
Bought for self-drive hire
Bought for driving instruction
Held as stock by a motor dealer

A genuine pool car may also qualify where the conditions are met. It should normally be kept at the principal place of business, not allocated to one person and not ordinarily kept at an employee's home.

The exception should be supported with evidence. A board minute created after an HMRC enquiry is not a substitute for real controls that operated from the beginning.

What if the VAT cannot be recovered?

Irrecoverable VAT normally forms part of the cost recorded for the car.

That gross cost may then form part of the qualifying expenditure for capital allowance purposes, subject to the normal rules.

This is why Corporation Tax relief and VAT recovery must be considered separately.

A company could claim a 100% first-year capital allowance on a qualifying gross cost while being unable to reclaim the purchase VAT.

VAT on leasing an electric company car

Leasing produces a different VAT result.

If a VAT-registered business leases a qualifying car for business purposes and the car is also available for private use, it can normally recover 50% of the VAT charged on the lease rental, subject to the normal VAT rules.

The 50% block is intended to cover the private-use element. The business does not have to calculate the exact private mileage to apply that standard restriction to the rental.

Worked lease example

Assume the monthly rental is £600 plus £120 VAT.

If the normal 50% VAT block applies:

VAT recovered each month: £60
VAT not recovered each month: £60
Net monthly cost after VAT recovery: £660
Net annual cost after VAT recovery: £7,920

The accounting and Corporation Tax deduction would then be considered using the net business cost and the terms of the lease.

The example assumes the company makes taxable supplies and is entitled to recover input VAT under the normal rules. A partially exempt business may face a further restriction.

Maintenance charges

Where maintenance is supplied and identified separately, the VAT treatment can be more favourable than the treatment of the lease rental.

VAT on repairs and maintenance can generally be recovered where the vehicle is used for business purposes and the business pays for the work, even if the car also has private use. The normal VAT rules, including partial exemption, still apply.

The invoice should clearly separate the lease and maintenance elements. If optional services are bundled into the rental without being identified separately, the 50% rental restriction may apply to the combined amount.

Excess mileage and termination charges

Excess mileage charges may follow the lease treatment where they form part of the leasing supply. If they relate to a separately supplied maintenance service, the result can differ.

Early termination payments and rental rebates can also require VAT adjustments.

The company should retain the lease agreement, VAT invoices, termination statement and any credit notes.

VAT when the car is sold

The VAT treatment of a later sale depends partly on what happened when the car was acquired.

If the company was charged VAT on purchase but the VAT was fully blocked, the later sale may be exempt from VAT under the relevant rules.

If the company was entitled to recover VAT on acquisition, output VAT will generally be due on the sale.

If no VAT was charged on acquisition, perhaps because the car was bought from a private individual or under a margin scheme, different resale rules may apply.

The original purchase invoice and VAT treatment should therefore remain linked to the asset record until the car is disposed of.

Does charging create a fuel benefit?

Electricity is not treated as fuel for the company car fuel benefit charge.

Where an employer owns or hires a fully electric company car, employer-funded charging does not normally have to be reported as a separate fuel benefit.

This can cover charging:

At the workplace
At public charge points using an employer-provided charge card
At the employee's home where the employer pays or reimburses the relevant cost

The absence of a separate benefit charge does not settle the VAT position. It also does not remove the need for an appropriate reimbursement process and evidence.

The rules are different where the electric car is personally owned by the director or employee.

Workplace charging

An employer can provide workplace charging facilities for electric and plug-in hybrid vehicles without creating a taxable benefit where the statutory conditions are met.

Broadly, the charging facilities must be at or near the workplace and must be made available generally to the employer's employees at that workplace.

The exemption can apply whether the vehicle is a company car or the employee's own car.

It does not normally cover:

Reimbursing an employee for charging elsewhere
A charger installed at the employee's home for their personally owned car
Facilities reserved selectively without satisfying the general-availability condition

The employer should have a written workplace charging policy explaining who can use the chargers, whether visitors may use them, how private use is treated and whether employees are charged.

If the business charges employees or customers to use the facility, it should consider whether output VAT is due on those supplies.

Installing a charger at an employee's home

Where the employer provides a home charging point for an employer-owned or employer-leased electric company car, HMRC's guidance indicates that no separate taxable benefit normally arises because the provision is connected with the taxable car.

The position differs where the employee owns the car personally. An employer-funded home charger for a personally owned vehicle can create a taxable benefit based on the cost to the employer.

Solar panels and home battery systems should not be treated automatically as part of the car-charging exemption. HMRC distinguishes them from equipment necessary for the provision or running of the taxable company car. Employer-funded solar panels or a home battery can therefore create a separate taxable benefit.

The installation agreement should address:

Who owns the charger
What happens if the employee leaves
What happens if the employee moves home
Repair and maintenance responsibility
Whether the charger is compatible with future cars
Whether removal costs may arise
Whether any grant conditions apply

Capital allowances for charging equipment

New electric vehicle charging-point equipment can qualify for a 100% first-year allowance where the statutory conditions and dates are met.

For Corporation Tax purposes, the current 100% first-year allowance for qualifying electric vehicle charging equipment is available for expenditure incurred up to 31 March 2027.

The qualifying expenditure should be identified separately from non-qualifying building works, repairs or wider electrical upgrades.

The business should also check whether an Office for Zero Emission Vehicles grant is available. Grant schemes, eligibility conditions and contribution rates can change, so availability should be confirmed before an order is placed.

A grant may reduce the expenditure on which tax relief is claimed. The accounting entry and capital allowance claim should reflect the funding actually received.

Charging a company car at home

Home charging is often the cheapest and most convenient option, but it creates measurement and evidence questions.

The employer should decide whether it will:

Pay a mileage rate for business journeys
Reimburse the actual business electricity cost
Pay the energy supplier directly under an appropriate arrangement
Provide a charge card or charging service
Pay all charging costs and require repayment for private travel where relevant

The chosen method should be applied consistently.

Useful evidence can include:

Business mileage logs
Charger reports
Electricity tariffs
Smart-meter data
Charging-app records
Energy bills
The car's consumption information
Public charge-point receipts

If the employee has solar panels, a home battery, off-peak tariffs or variable electricity pricing, the actual cost can be harder to establish. The employer should avoid reimbursing an unsupported estimate merely because the car's dashboard shows the amount of energy used.

The tax exemption for employer-funded charging of a company car does not automatically give the employer a VAT claim on the employee's domestic electricity bill.

HMRC advisory electricity rates from 1 September 2026

HMRC publishes advisory electricity rates for employees using fully electric company cars.

From 1 September 2026, the rates are:

7p per business mile where the car is charged using a home charger
15p per business mile where the car is charged using a public charger

These rates apply to company cars. They are not the approved mileage rates for an employee's own car.

The rates can be used when:

The employer reimburses an employee for business travel in a fully electric company car
The employee needs to repay the employer for electricity used on private travel

If the employer pays no more than the appropriate advisory rate for qualifying business travel, no taxable profit should normally arise.

HMRC allows an employer to use a different rate where it can demonstrate that the actual electricity cost per mile is different. The calculation should be reasonable, evidenced and reviewed when tariffs or vehicle efficiency change.

Paying above the advisory rate without evidence that the business electricity cost is higher can create taxable earnings on the excess.

Advisory rates are reviewed regularly. Payroll and expenses software should not treat 7p and 15p as permanent rates.

Example: home-charged business mileage

A director drives 600 qualifying business miles in a fully electric company car during a month. The car is charged at home.

Using the 7p advisory rate, the company reimburses:

600 miles multiplied by 7p
£42

Provided the journeys are qualifying business travel and the relevant conditions are met, the £42 should not normally be taxable.

Example: public-charged business mileage

An employee drives 300 qualifying business miles and uses public charging.

Using the 15p public-charger rate, the company reimburses:

300 miles multiplied by 15p
£45

The company should retain the mileage claim and evidence of the public charging arrangement.

Mixed home and public charging

Where a car is charged partly at home and partly at public chargers, the company should adopt a reasonable method that reflects the charging used for the relevant business travel.

It should not automatically apply the higher public-charger rate to all mileage merely because the employee occasionally used a rapid charger.

If precise matching is impractical, the employer should document the basis of any blended or actual-cost rate and keep enough evidence to support it.

Charging at public charge points

Public charging prices can vary significantly.

Costs may depend on:

Charging speed
Network operator
Membership or subscription
Time of day
Location
Parking fees
Idle fees
Roaming charges

A director who relies heavily on rapid public charging may have a much higher energy cost than a driver who charges overnight at home.

Public charging should therefore be included in the total-cost forecast. The low company car benefit does not compensate automatically for an unsuitable charging pattern.

An employer-provided charge card for an employer-owned or employer-leased fully electric car does not normally create a separate taxable benefit.

The company should still distinguish:

Charging cost
Parking cost
Penalties
Non-business purchases
Private travel where repayment is required under the company's policy

Parking fines and penalties should not be posted to electricity or motor-running costs simply because they appear on the same charge-card statement.

VAT on electricity used to charge an electric car

VAT recovery depends on where the vehicle is charged, who receives the supply and whether the electricity relates to business use.

Charging at the business premises

A VAT-registered business may recover VAT on electricity used for business purposes, subject to the normal rules.

If the electricity also supports private motoring, the business may need an appropriate method to deal with the private element.

Detailed mileage and charging records can be important. The business's VAT recovery may also be restricted if it makes exempt supplies or has non-business activities.

Charging at a public charging point

Public electric-vehicle charging is generally standard-rated for VAT.

Where an employee charges a vehicle used for business at a public charging point, HMRC's guidance allows the employer to recover VAT subject to the normal rules, provided the required evidence is held and the cost relates to business use.

The employer should obtain a proper VAT invoice or receipt and keep detailed mileage records.

The Income Tax exemption for charging and the VAT recovery rules are separate. A payment can be non-taxable for the employee without necessarily creating a valid VAT claim for the company.

Charging at the employee's home

Where an employee charges a vehicle at home, HMRC treats the domestic electricity supply as being made to the employee rather than the employer.

The employer is therefore not entitled to recover VAT on that home electricity cost under HMRC's published guidance, even where it reimburses the employee.

This is a crucial distinction.

The company may be able to reimburse a qualifying company-car charging cost without creating a taxable benefit for the employee, but that does not mean the company can reclaim the VAT shown on the employee's household energy bill.

Domestic and public VAT rates are not interchangeable

Domestic electricity is commonly supplied at the reduced VAT rate where the relevant conditions apply. Public charging is normally standard-rated.

The advisory electricity rate is a tax and reimbursement tool. It does not itself establish the amount of input VAT the business may recover.

VAT should be claimed from evidence of the relevant supply, not by extracting VAT mechanically from every mileage reimbursement.

What if the employee uses their own electric car?

The rules change when the car belongs to the director or employee personally.

For qualifying business journeys in an employee's own car, the approved mileage allowance payment rates for 2026/27 are:

55p per mile for the first 10,000 business miles for Income Tax purposes
25p per mile after the first 10,000 business miles for Income Tax purposes
55p per business mile for National Insurance purposes throughout 2026/27

These rates apply to the whole cost of using the employee's own car. They are not an electricity-only reimbursement.

The approved amount is intended to cover costs such as:

Electricity
Insurance
Servicing
Repairs
Tyres
Depreciation
Vehicle Excise Duty

The 7p home-charger and 15p public-charger advisory rates must not be substituted for the own-car mileage rates. Those advisory electricity rates apply to fully electric company cars.

If the employer pays less than the approved Income Tax amount for an employee's own car, the employee may be able to claim Mileage Allowance Relief on the qualifying shortfall.

If the employer pays more than the approved amount, the excess can be taxable.

Ordinary commuting remains private travel and does not become claimable because the employee drives an electric car.

Salary sacrifice and electric company cars

Electric cars can be provided through a salary sacrifice arrangement.

Under salary sacrifice, the employee gives up part of their contractual cash salary in return for the non-cash benefit.

The optional remuneration rules normally tax many benefits by reference to the higher of the salary given up and the normal benefit value. However, cars with CO2 emissions of no more than 75g/km are excluded from that comparison.

A fully electric car can therefore continue to be taxed under the normal company car benefit rules rather than automatically being taxed on the larger salary sacrificed.

This can make electric-car salary sacrifice attractive, but the arrangement needs careful design.

The employer should consider:

The contractual salary variation
National Minimum Wage restrictions
Pensionable pay
Statutory maternity, paternity and sick pay
Overtime and bonus calculations
Life cover and income protection
Early termination costs
Redundancy or resignation
Long-term absence
Changes to company car tax percentages
What happens if the employee can no longer drive
Insurance and accident costs

An employee should not enter a long lease based only on the first year's tax saving.

Salary sacrifice example

Assume an employee gives up £700 of gross salary each month for a fully electric company car.

The annual salary sacrificed is £8,400.

If the car's taxable list price is £50,000, the normal 2026/27 benefit is £2,000.

Because the car has zero CO2 emissions, the company car is normally taxed using the standard car-benefit calculation rather than the £8,400 salary foregone amount.

The exact net saving depends on the employee's tax and National Insurance position, the employer's National Insurance saving, scheme charges, pension arrangements and the lease cost.

The employer should produce an individual illustration rather than promising a fixed percentage saving to every employee.

Pool cars and electric vehicles

An electric car can be a pool car if all the statutory conditions are met.

A qualifying pool car does not create a company car benefit for individual employees.

Broadly, a pool car must be:

Available to, and actually used by, more than one employee
Not ordinarily used by one employee to the exclusion of others
Used mainly for business journeys
Subject to only incidental private use
Normally kept overnight at the employer's premises

Calling a vehicle a pool car in the bookkeeping records does not make it one.

An electric car allocated to the managing director, kept at the director's home and used at weekends is unlikely to qualify simply because another employee occasionally drives it.

Pool-car conditions should be supported by booking records, mileage logs, key controls, an insurance policy and a written prohibition on non-incidental private use.

Vehicle Excise Duty for electric cars

Electric cars are no longer automatically exempt from Vehicle Excise Duty.

For the period from 1 April 2026 to 31 March 2027:

A qualifying electric, zero or low-emission car registered on or after 1 April 2025 pays £10 in the first year
It then pays the standard annual rate of £200
Cars registered between 1 April 2017 and 31 March 2025 generally pay the £200 standard rate

An additional expensive-car supplement can apply to a zero-emission vehicle registered on or after 1 April 2025 where its list price is more than £50,000. The additional rate applies for five years, starting from the second year of vehicle tax.

This cost is separate from the company car benefit calculation.

The government has also introduced legislation for a mileage-based Electric Vehicle Excise Duty from 1 April 2028. The announced starting rate for battery electric cars is 3p per mile. A business entering a long-term lease should include this forthcoming cost in its forecast, while checking the final operating guidance nearer the start date.

Insurance, repairs and other running costs

Tax is only one part of the decision.

The company should forecast:

Insurance
Servicing
Tyres
Repairs
Breakdown cover
Replacement vehicle costs
Charging cables
Home or workplace charger installation
Software subscriptions
Public charging membership
Parking
Vehicle Excise Duty
Finance interest
Lease excess mileage
Damage and end-of-lease charges
Expected resale value

Electric vehicles can have lower routine servicing requirements than combustion-engine cars, but tyre costs, insurance and body repairs can be significant.

Battery warranty, charging speed, real-world range and expected winter performance should also be considered.

A tax-efficient car that regularly disrupts business travel may still be the wrong commercial choice.

Bought car or leased car: which is better?

There is no universal answer.

Buying may suit a company that:

Has enough cash or suitable finance
Wants to keep the car for several years
Can use the 100% first-year allowance
Accepts resale-value and battery-value risk
Wants freedom from mileage limits

Leasing may suit a company that:

Prefers predictable monthly payments
Wants to replace cars regularly
Values manufacturer warranty coverage
Wants potential recovery of 50% of the rental VAT
Does not want to manage a future sale
Can estimate mileage reliably

The comparison should use the same period and include all upfront and end-of-contract costs.

Comparing the cash purchase price with one month's lease rental is meaningless. A proper comparison should include:

Initial payment
Monthly payments
VAT recovery
Corporation Tax relief
Finance interest
Maintenance
Insurance
Charging
Employer National Insurance
Employee tax
Vehicle Excise Duty
Exit costs
Resale proceeds or lease return conditions

A full worked example

Consider a director whose company is deciding whether to buy a new electric car.

Assume:

Taxable list price: £60,000
Company purchase cost: £58,000 plus £11,600 VAT
Purchase VAT is blocked because private use is available
Capitalised cost: £69,600
The car is new, unused and zero emission
It is provided throughout 2026/27
The director pays Income Tax at 40%
The company pays Corporation Tax at 25%
Class 1A National Insurance rate: 15%

Employee benefit

The company car benefit is based on the £60,000 taxable list price, not the discounted company purchase cost.

£60,000 multiplied by 4%
Benefit: £2,400
Director's Income Tax at 40%: £960

Employer National Insurance

£2,400 multiplied by 15%
Class 1A National Insurance: £360

Corporation Tax relief on the car

If the full gross cost of £69,600 qualifies for the 100% first-year allowance:

Capital allowance: £69,600
Potential Corporation Tax reduction at 25%: £17,400

The company must still fund £69,600. The £17,400 is a potential tax reduction, not an immediate reduction in the supplier's invoice.

The actual timing depends on the company's accounting period, taxable profits, tax payment date and ability to use the allowance.

VAT position

The £11,600 purchase VAT is blocked because the car is available for private use.

The company should not enter that amount as recoverable VAT merely because the car is electric.

Charging

Assume the director drives 8,000 business miles and 5,000 private miles in the year. Most charging takes place at home.

The company could reimburse qualifying business mileage using the applicable advisory home-charging rate. At 7p per business mile, 8,000 business miles would produce a reimbursement of £560 if that rate applied throughout the relevant period.

The advisory rate is reviewed regularly, so an annual calculation should use the rate applying at the time of each journey rather than assuming that one rate applied for the whole year.

The company cannot recover VAT from the director's domestic electricity supply merely because it reimburses the mileage.

What the example shows

The decision includes at least four separate calculations:

Income Tax on the director's car benefit
Employer Class 1A National Insurance
Corporation Tax relief on the company's expenditure
VAT recovery, or the absence of it

Looking at only one of these figures can produce the wrong conclusion.

Cashflow considerations

A 100% capital allowance can improve tax efficiency, but it does not pay the dealership or finance company.

Before acquiring the car, the business should ask:

Can the company fund the deposit or purchase price without weakening working capital?
When will the Corporation Tax saving actually arise?
Does the company have enough taxable profit to use the allowance?
Will the purchase create a loss that is carried forward?
Are VAT payments affected?
Will the director need to reduce dividends or other drawings?
Does the company have upcoming PAYE, VAT or Corporation Tax liabilities?
Could an overdraft or loan be required later?

A company should not create a cash shortage to obtain tax relief.

The cashflow model should cover the full intended ownership or lease period and include a downside scenario for lower resale value, higher electricity prices and unexpected repairs.

Bookkeeping for electric company cars

The bookkeeping should distinguish the car, finance, charging and employment-tax elements.

Useful nominal-ledger categories may include:

Motor vehicles at cost
Accumulated depreciation
Hire purchase liability
Lease rentals
Lease interest
Repairs and maintenance
Insurance
Vehicle Excise Duty
Workplace electricity
Public charging
Mileage reimbursements
Charge-point equipment
Employee contributions
Class 1A National Insurance
Profit or loss on disposal

The exact coding will depend on whether the company owns, finances or leases the vehicle.

Purchase bookkeeping

If purchase VAT is blocked, it should not be posted to recoverable input VAT. It will normally form part of the asset cost.

The accounting depreciation charge is not normally the Corporation Tax deduction. Depreciation is added back in the tax computation and capital allowances are considered separately.

Lease bookkeeping

The accounting treatment depends on the applicable accounting standard and the lease terms.

The business should not assume that every monthly payment is simply motor expense. The initial rental, finance component, maintenance package and any balance-sheet lease treatment may need separate consideration.

Charging bookkeeping

Charging claims should identify:

Date
Journey
Business purpose
Start and destination
Business miles
Car used
Charging location
Rate applied
Amount reimbursed
Supporting receipt where relevant

Personal spending on a company charge card should be identified promptly and repaid or posted correctly. It should not remain hidden within general motor expenses.

Common electric company car mistakes

Mistake 1: reclaiming purchase VAT automatically

Electric status does not override the VAT block on cars available for private use.

Mistake 2: using the discounted purchase price for benefit in kind

The company car benefit normally uses the taxable list price, including relevant accessories.

Mistake 3: applying the 100% allowance to a used car

The special first-year allowance requires a qualifying new and unused zero-emission car.

Mistake 4: confusing Corporation Tax relief with a grant

The allowance reduces taxable profits. It does not reduce the supplier's invoice or guarantee an immediate cash refund.

Mistake 5: using own-car mileage rates for a company car

The approved mileage rates for a personally owned car are not the same as HMRC's advisory electricity rates for a company car.

Mistake 6: using the company-car electricity rate for a personal car

An employee using their own electric car for business travel falls within the approved mileage allowance system, not the company-car advisory electricity rate system.

Mistake 7: reclaiming VAT on home electricity reimbursed to an employee

HMRC treats the home electricity supply as made to the employee, so the employer cannot normally recover VAT on that cost.

Mistake 8: ignoring future benefit-rate increases

A lease may extend into tax years when the electric-car percentage is 5%, 7% or 9%.

Mistake 9: forgetting Class 1A National Insurance

The employee's low tax charge does not remove the employer's National Insurance liability.

Mistake 10: assuming no private mileage means no benefit

The car benefit is generally based on availability for private use, not simply actual private miles.

Mistake 11: calling an allocated vehicle a pool car

The statutory pool-car conditions must be met in practice.

Mistake 12: ignoring Vehicle Excise Duty

Electric cars now pay Vehicle Excise Duty, and more expensive cars can face an additional supplement.

Mistake 13: failing to update advisory electricity rates

The rates are reviewed regularly. Outdated rates can create underpayments, excessive reimbursements or incorrect private-use repayments.

Mistake 14: treating all charging as one VAT category

Workplace, public and home charging can have different evidence and VAT consequences.

Mistake 15: signing a lease before checking the tax treatment

Once a long contract is signed, it may be expensive to change the vehicle, mileage limit or term.

Special considerations for owner-managed companies

An owner-director is both the person receiving the car and a decision-maker for the employer.

That makes documentation particularly important.

The company should record:

Why the car was selected
Whether the arrangement is purchase, hire purchase or lease
Who may use it
The permitted private use
Who pays for charging
How business mileage is recorded
How private electricity is repaid, if required
The treatment of a home charger
Any employee capital contribution
The date the car became available
The planned reporting method

If the company pays a personal liability for the director without the correct treatment, the amount could be a benefit, salary, dividend or director's loan transaction depending on the facts.

The bookkeeping description does not determine the legal and tax character of the payment.

A director should also consider whether taking the car affects mortgage planning, pensionable earnings or other remuneration decisions.

Is an electric company car always better than a personal car?

No.

An electric company car can be very efficient where the individual wants a relatively expensive vehicle, the company has suitable profits and cash, and the car will be kept within a well-managed arrangement.

A personally owned car may be preferable where:

The individual wants complete ownership and flexibility
The business mileage reimbursement is valuable
The company has limited cash
A used car offers better commercial value
The individual wants to avoid company-car reporting
The car would be retained for a long period
Lease mileage or condition restrictions would be difficult

The correct comparison should calculate the after-tax cost to both the company and the individual.

It should not compare only the employee's benefit tax with a personal monthly finance payment.

Questions to answer before choosing an electric company car

Before the company signs an order or finance agreement, establish:

Is the vehicle fully electric, or is it a plug-in hybrid?
What is the official CO2 figure?
What is the taxable list price including accessories?
Will the company buy, use hire purchase or lease?
Is the car new and unused?
Will private use be available?
Can any purchase VAT genuinely be recovered?
What Corporation Tax rate is likely to apply?
Can the company use the capital allowance in the intended period?
What will the employee's benefit tax be in every year of the agreement?
What Class 1A National Insurance will the employer pay?
Where will the car normally be charged?
Who will pay for home, workplace and public charging?
How will business and private mileage be recorded?
Will a charger be installed at home or work?
What happens if the employee leaves or moves home?
What Vehicle Excise Duty and expensive-car supplement will apply?
Is the expected mileage within the lease allowance?
What insurance and repair costs are expected?
What is the estimated total after-tax cost over the full period?

Practical implementation checklist

Before ordering

Obtain the official vehicle specification and list price
Confirm whether the car is zero emission
Compare purchase, hire purchase and lease quotations on the same basis
Check the expected capital allowance treatment
Review VAT recovery separately
Forecast employee tax and employer National Insurance for every contract year
Check company cashflow and tax-payment dates
Review charging availability and likely public-charging dependence
Confirm insurance and Vehicle Excise Duty costs

Before making the car available

Approve the arrangement formally
Put a vehicle-use policy in place
Record the employee or director receiving the car
Set business and private mileage procedures
Agree the charging reimbursement method
Document any employee contribution
Configure payroll or benefits reporting
Keep purchase, finance and lease documentation
Install and document any charging equipment

Each month

Process charging and mileage claims
Check that the correct advisory rate was used
Separate public charging, parking and penalties
Record private reimbursements
Reconcile charge-card statements
Update finance or lease balances
Review unusual personal expenditure

At the year end

Confirm availability dates
Review accessories and contributions
Calculate or verify the car benefit
Calculate Class 1A National Insurance
Review the capital allowance claim
Reconcile motor expenses and charging accounts
Check VAT recovery
Prepare P11D and P11D(b) information where required
Prepare for mandatory payroll reporting from April 2027

Frequently asked questions

What is the company car tax rate for a fully electric car in 2026/27?

The appropriate benefit percentage is 4% for a zero-emission company car.

The 4% is applied to the car's taxable list price, including relevant accessories. The employee then pays Income Tax on the resulting benefit.

Does the employee pay 4% of the car's price?

No.

The 4% produces the taxable benefit. The employee pays Income Tax on that benefit at their marginal rate.

For a £50,000 car, the benefit is £2,000. A 40% taxpayer would pay £800 of Income Tax, assuming a full year's availability and no other adjustment.

Is there employer National Insurance on an electric company car?

Yes.

The employer normally pays Class 1A National Insurance on the taxable benefit. The 2026/27 rate is 15%.

Can a company claim 100% tax relief on an electric car?

A qualifying new and unused zero-emission car can receive a 100% first-year capital allowance where the expenditure falls within the statutory period and the conditions are met.

For Corporation Tax, the current end date is 31 March 2027.

The allowance reduces taxable profits. The actual tax saving depends on the company's Corporation Tax position.

Does a used electric car qualify for the 100% first-year allowance?

No, not under the new-and-unused zero-emission car allowance.

A second-hand electric car normally receives main-rate writing-down allowances instead.

Can the company reclaim VAT on buying an electric car?

Usually not where the car is available for private use.

Electric cars are subject to the normal car VAT block. Full recovery requires a specific exception, such as genuine exclusive business use with no private availability, or qualifying taxi, self-drive hire, driving-instruction or stock use.

Can the company reclaim VAT on an electric car lease?

A VAT-registered business can normally recover 50% of the VAT on the lease rental where the qualifying car is used for business and is available for private use, subject to the normal rules.

Separately invoiced maintenance can have a different treatment.

Is home charging a taxable benefit?

For a fully electric car owned or hired by the employer, employer-funded charging does not normally create a separate taxable benefit.

Different rules can apply where the car is personally owned by the employee.

Can the company reclaim VAT on an employee's home electricity?

No, not under HMRC's published approach. The home electricity supply is made to the employee, not the employer.

What mileage rate can be paid for an electric company car?

From 1 September 2026, HMRC's advisory electricity rates are 7p per business mile for home charging and 15p for public charging.

The rates are reviewed regularly. A different evidenced rate may be used where the actual cost per mile is higher or lower.

What rate applies to an employee's own electric car?

For 2026/27, the approved mileage rate for Income Tax purposes is 55p per business mile for the first 10,000 miles and 25p thereafter.

For National Insurance purposes, the 2026/27 rate is 55p for all business miles.

These are whole-vehicle mileage rates, not electricity-only rates.

Can the company pay for a home charger?

Yes.

Where the charger is provided for an employer-owned or employer-leased company car, HMRC's guidance indicates that no separate taxable benefit normally arises.

Where the employee owns the car, employer-funded installation may create a taxable benefit.

Is free workplace charging taxable?

Workplace charging can be exempt where the facilities are at or near the workplace and are made available generally to employees at that workplace.

The exemption can cover company cars and personally owned electric or plug-in hybrid vehicles.

Does ordinary commuting count as business mileage?

No.

Travel between home and a permanent workplace is normally private commuting. It does not become business travel because the car is electric or company-owned.

Can an electric car be a pool car?

Yes, if all the pool-car conditions are met in practice.

The car must not simply be allocated to one director and described as a pool car in the accounts.

Are electric cars exempt from Vehicle Excise Duty?

No.

Electric cars have been within the Vehicle Excise Duty system since April 2025. The rate depends on the registration date and vehicle details. More expensive zero-emission cars can also face the expensive-car supplement.

Is a salary sacrifice electric car tax-efficient?

It can be.

Qualifying low-emission cars are excluded from the normal comparison with salary foregone, so a fully electric car continues to use the company car benefit calculation. The overall result still depends on the lease cost, employee tax position, employer savings and employment terms.

Should the company buy the car before 31 March 2027?

The current 100% first-year allowance for companies buying qualifying new and unused zero-emission cars is due to end on 31 March 2027.

The car should not be bought solely to secure an allowance. The company should confirm the acquisition date, delivery terms, legal obligation to pay, cashflow and expected business use before proceeding.

Electric cars can be tax-efficient, but the details matter

The low 4% company car benefit rate makes fully electric cars attractive in 2026/27.

However, the benefit in kind is only one part of the calculation.

A reliable decision should consider:

Employee Income Tax
Employer Class 1A National Insurance
Corporation Tax relief
Purchase or lease VAT
Finance and lease costs
Charging location
Mileage reimbursement
Vehicle Excise Duty
Insurance and maintenance
Resale or termination risk
Reporting and bookkeeping

The most common mistakes arise when one favourable rule is assumed to apply everywhere.

A 100% capital allowance does not guarantee VAT recovery. Tax-free company-car charging does not necessarily give the company a VAT claim. A low benefit percentage does not make an expensive lease commercially affordable.

The right approach is to calculate the total after-tax cost before the contract is signed.

Speak to PR Accountants Ltd

PR Accountants Ltd can help directors and employers assess whether an electric company car is suitable for the business and calculate the expected tax, VAT and cashflow consequences.

Our support can include:

Company car benefit calculations
Purchase versus lease comparisons
Corporation Tax and capital allowance reviews
VAT treatment
Salary sacrifice planning
Mileage and charging policies
P11D and P11D(b) reporting
Payroll preparation for mandatory benefit reporting
Bookkeeping and management accounts
Director remuneration planning
Cashflow forecasting

The best time to review the arrangement is before the vehicle is ordered or the finance agreement is signed.

PR Accountants Ltd
Email: info@praccounting.co.uk
Landline: 0330 043 0792
WhatsApp: 07946 617369
Website: www.praccounting.co.uk
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Official guidance

This article provides general information based on the rules and published guidance available at 29 September 2026. It does not constitute personalised tax, VAT, legal, employment, financial or investment advice. Tax treatment depends on the vehicle, finance agreement, business activities, VAT position, private use, employee arrangements and wider circumstances. Rates, allowances and guidance can change.