Buying an Electric Car Through Your Limited Company
For directors of limited companies, buying an electric car through the business is a decision that can bring both tax advantages and long-term savings. With the UK Government actively encouraging zero-emission transport, electric vehicles (EVs) offer a compelling opportunity for business owners looking to reduce both their environmental impact and their tax bill.
At Jan McDermott Chartered Accountants, we support clients in weighing the benefits and understanding the practicalities of buying an electric car through a limited company. Here’s everything you need to know:
Claiming Capital Allowances on Business Vehicles
When your limited company buys a new electric car, it may qualify for generous tax relief through capital allowances. These allowances reduce your company’s taxable profits, making the vehicle a more affordable investment from a tax perspective.
Fully electric, brand-new vehicles are currently eligible for a 100% First Year Allowance (FYA)—allowing a deduction of the full cost in the year of purchase. That means the financial benefit is immediate. Different rules apply to second-hand vehicles or hybrids, which may fall under the main rate (18%) or special rate (6%) depending on CO₂ emissions. For more details, refer to the guidance on HMRC capital allowances.
There’s also a capital allowance available for installing charging infrastructure—whether at your business premises or, in some cases, at employees’ homes.
Reclaiming VAT on Vehicle and Charging Costs
When buying through your company, understanding how VAT applies to electric vehicles is essential. VAT treatment depends on how the vehicle is used and how charging is managed, and mistakes can lead to missed opportunities or HMRC issues.
If a company car is used solely for business purposes, your company may be able to reclaim 100% of the VAT paid on the vehicle. However, if the vehicle is also used for personal travel (which is typical), VAT recovery is usually limited to 50%—and only if the car is leased. VAT on outright purchases with mixed-use is generally not recoverable.
There’s more flexibility when it comes to charging costs. VAT on electricity used for charging an EV at the workplace or via a company-installed home charger can usually be reclaimed—provided usage is appropriately documented. For further information, refer to HMRC’s guidance on VAT for road fuel and motoring expenses.
Saving Corporation Tax Through Leasing Options
Leasing an electric vehicle through your limited company can be a flexible and tax-efficient option—especially if you’d prefer to avoid the upfront costs of buying a car outright. Lease payments are typically deductible as business expenses, reducing your company’s taxable profits over the term of the lease.
However, the tax treatment becomes more nuanced when using the vehicle for both business and personal journeys, which is often the case for company directors.
- Corporation tax: The company can usually deduct the full cost of the lease payments from its profits, even if the car is used personally, provided the leasing agreement is in the company’s name, and the vehicle is classed as a company car.
- VAT: If the vehicle is used for both business and personal purposes (which HMRC assumes unless you can prove otherwise), your company can typically reclaim 50% of the VAT on the lease payments. If the car is used exclusively for business, you may be able to reclaim 100%, but this must be clearly evidenced.
- Leased vehicle ownership: In most cases, the company does not own the vehicle at the end of the term. If you want to retain the car long-term, consider a hire purchase or finance lease arrangement instead.
Leasing can be especially appealing if your business wants to keep cash flow steady, avoid concerns around depreciation, and regularly upgrade to newer models. When reviewing the tax position, just be sure to factor in the personal use implications.
Reducing Personal Tax Through Low Benefit-in-Kind Rates
If you use a company car for personal journeys—as most directors do—there’s a personal tax charge under the Benefit-in-Kind (BIK) rules. Fortunately, fully electric vehicles currently attract much lower BIK rates than their petrol or diesel counterparts.
For electric cars, the BIK rate is currently low at 3% (for 25/26) and increasing to 5% in 27/28.
This benefit makes electric vehicles desirable for directors who want a company car but wish to minimise their personal tax bill.
Comparing Vehicle Acquisition Methods for Business Use
Your company can acquire an electric vehicle in several ways—each with different financial, tax, and operational considerations. The right choice will depend on your business’s cash flow, long-term plans, and how the vehicle will be used.
- Outright purchase: Maximises capital allowances and ownership benefits but requires a more significant upfront investment.
- Hire purchase: Provides access to tax relief while allowing you to spread the cost.
- Operating lease: Offers predictable costs, flexibility, and minimal balance sheet impact.
- Finance lease or PCP: Often treated as ownership for tax purposes and can be suitable if long-term use or purchase is expected.
While tax should be a consideration, we always recommend starting with the commercial case—how the vehicle fits your needs and cash position—and then reviewing the tax treatment with your accountant.
Reviewing Practical Considerations Before Purchase
Beyond tax savings, real-world considerations can affect whether an electric vehicle is right for your business. Before deciding, take the time to think through the following:
Do you have access to convenient charging at home or work? The Workplace Charging Scheme can reduce installation costs significantly.
Consider range, charging speed, and how the vehicle aligns with your day-to-day travel needs.
EV values can vary, and leasing may help manage future risk if residual value is a concern.
Tax rates and allowances may evolve. Keeping up to date ensures you don’t get caught out.
By factoring these practicalities into your planning, you can make a decision that supports your business now and in the years ahead.
Seeking Professional Guidance on Electric Vehicle Strategy
Buying an electric car through your limited company can deliver tangible benefits—but only if the structure and usage are appropriately planned. Tax reliefs, VAT rules, and BIK rates can all work in your favour, but they require careful handling to ensure compliance and maximise value.
At Jan McDermott Chartered Accountants, we help company directors and small business owners navigate the process confidently. Whether you’re buying, leasing, or still deciding, we’ll guide you through the options and help you stay ahead of the tax rules.
Get in touch to explore whether an electric vehicle is the right move for your business.