A new electric car bought through your limited company is taxed lightly as a perk, and the company can deduct the whole cost in the year it buys the car. The catch is that the saving is real but not free. You pay benefit in kind tax on the car, the company pays National Insurance on the same benefit, and the allowance has an end date. For zero-emission cars the benefit in kind rate is 3% in 2025-26, 4% in 2026-27 and 5% in 2027-28, and the 100% first-year allowance is available for company spending up to 31 March 2027.
This guide sets out the rates, shows the director's tax on a worked £40,000 car, explains the allowance, and is plain about the numbers you will need to fill in yourself before comparing the company route with buying personally.
The short version
| Item | What applies |
|---|---|
| Benefit in kind rate, zero-emission car | 3% (2025-26), 4% (2026-27), 5% (2027-28) |
| Who pays tax on the benefit | The director, at their own income tax rate |
| Who pays Class 1A National Insurance | The company |
| Company's capital allowance | 100% first-year allowance on a new zero-emission car, to 31 March 2027 for Corporation Tax |
| Chargepoints | A separate 100% first-year allowance, same end dates |
| Extra costs to remember | Vehicle excise duty and, from £40,000 list price, the Expensive Car Supplement |
What benefit in kind means for a director
A benefit in kind is any non-cash benefit of monetary value that a company gives to someone who works for it. A company car that you can use privately is one. The tax exists because the car is worth something to you on top of your pay, even though no money changes hands.
HMRC works the value of the benefit out from the car's P11D value, which is the list price including VAT, delivery charges and factory-fitted optional extras. Fleet News adds that the P11D value leaves out the first-year registration fee and vehicle tax. The company reports the figure to HMRC. It is the manufacturer's list price, not what you or the dealer actually agreed to pay, so a discount does not lower it.
The list price is multiplied by the appropriate percentage, which is HMRC's term for the rate that applies to the car. For cars with CO2 emissions the percentage is set under section 139 of the Income Tax (Earnings and Pensions) Act 2003, and the wider rules for the car benefit sit in sections 121 to 148 of that Act. You then pay income tax on the result at your own rate. The annual tax is:
P11D value × benefit in kind rate × your income tax rate
The benefit in kind tax is generally collected from your pay through PAYE.
The rates for a zero-emission car
The rate for a car that emits no CO2 is the lowest in the system. HMRC's table of appropriate percentages shows 3% for 2025-26 and 4% for 2026-27 in the 0 g/km row. HMRC's tax information and impact note explains that the rate rises by one percentage point a year from 6 April 2025 for the 2025-26, 2026-27 and 2027-28 tax years, reaching 5% for zero-emission cars in 2027-28.
| Tax year | Zero-emission car rate |
|---|---|
| 2024-25 | 2% |
| 2025-26 | 3% |
| 2026-27 | 4% |
| 2027-28 | 5% |
| 2028-29 | 7% |
| 2029-30 | 9% |
The government has already set the 2028-29 and 2029-30 rates, so the direction is clear: the rate climbs, and the climb steepens after 2027-28. If you expect to keep the car for three or four years, price it at the rates for each year you will have it, not at today's rate.
Plug-in hybrids are taxed much more heavily than pure electric cars. A plug-in hybrid with an electric range under 30 miles is at 15% for 2025-26, five times the electric rate. The low rate is for cars that emit nothing at the tailpipe, not for anything with a plug.
The rules can change. Fleet News has reported that HMRC is considering a change to company car tax for used electric cars, and Budgets arrive every year. Check the rate for the year you take delivery on GOV.UK before you commit.
Worked example: a £40,000 electric car
Take a new electric car with a P11D value of £40,000. This is the same figure Fleet News and The Electric Car Scheme use in their own examples. The taxable benefit each year is £40,000 multiplied by the rate, and the tax is that benefit multiplied by the director's income tax rate.
| Tax year | Rate | Taxable benefit | Tax at 20% | Tax at 40% | Tax at 45% |
|---|---|---|---|---|---|
| 2025-26 | 3% | £1,200 | £240 | £480 | £540 |
| 2026-27 | 4% | £1,600 | £320 | £640 | £720 |
| 2027-28 | 5% | £2,000 | £400 | £800 | £900 |
| 2028-29 | 7% | £2,800 | £560 | £1,120 | £1,260 |
| 2029-30 | 9% | £3,600 | £720 | £1,440 | £1,620 |
For 2026-27 at 4%, a higher rate taxpayer pays £640 a year, about £53 a month. A basic rate taxpayer pays £320 a year, about £26.67 a month, up from £20 a month at 3%.
The income tax bands that apply depend on your total income. With the standard £12,570 Personal Allowance, the basic rate is 20% on income up to £50,270, the higher rate is 40% on income from £50,271 to £125,140, and the additional rate is 45% above £125,140. Because the benefit is added to your other income, it can push you across a band, which is why we show the 45% column.
This is the director's side only. For comparison, a petrol car of similar price at the top rate of 37% would produce a benefit of £14,800 on the same £40,000. That is the contrast that makes the electric route attractive.
The company's side: Class 1A National Insurance
When a company provides a car for private use, the company pays Class 1A National Insurance on the benefit. It is a cost to the company, not to you personally, and it is not covered by the director's income tax in the table above.
We do not put a rate on it here, because it is set by HMRC and should be taken from GOV.UK for the year in question. To include it in your own comparison, multiply the taxable benefit (the £1,600 in the 2026-27 row, for example) by the current Class 1A rate. Because the benefit is small for an electric car, so is this cost. The company then gets Corporation Tax relief on what it pays, which is another number that depends on your company's rate.
The 100% first-year allowance
A first-year allowance lets a company deduct qualifying spending from its profits in the year it is incurred, instead of spreading the deduction over many years through writing down allowances. For a new zero-emission car, the allowance is 100% of the cost.
HMRC's note on the extension says the allowance has been extended by one year. It now runs to 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax. It applies to qualifying spending incurred on or after 1 April 2026 for Corporation Tax purposes. The law is in section 45D of the Capital Allowances Act 2001. The note describes the allowance as covering new zero-emission cars, and it says eligibility has been limited to zero-CO2 cars since April 2021.
The deadline matters. A company that buys after 31 March 2027 should not assume the 100% deduction will still be there, so if the timing is flexible it is worth planning the purchase around it.
Here is what the allowance does for the £40,000 car. The company deducts £40,000 from its profits for the accounting period in which it buys the car. The tax saved is £40,000 multiplied by the Corporation Tax rate your company pays. To put it in a form you can use without us guessing: every percentage point of Corporation Tax rate is worth £400 on a £40,000 car. Look up your company's rate and multiply.
A few points we cannot answer for you here, because they depend on the facts:
- Whether VAT on the car can be recovered by the company. The P11D value includes VAT, but the VAT position on the purchase depends on the circumstances.
- What happens to the tax position when the company later sells the car.
- Whether the allowance is available if the car is not bought outright.
Check those with your accountant or HMRC before you buy.
Buying or leasing through the company
The benefit in kind charge is the same whether the company buys the car or leases it. It applies to any car a company provides for an employee's private use. What changes is the company's tax relief.
The 100% first-year allowance is relief on spending on a new zero-emission car, which is a purchase. How the rentals under a lease or contract hire agreement are treated for Corporation Tax depends on the agreement, and we do not set that out here. Ask your accountant to look at the actual lease terms. The quick test is whether the company will own the car at the end. If it will not, you are comparing a different kind of tax relief.
Charging at home and at work
The cost of electricity is where company car owners most often go wrong, because the rules for charging a company car at home differ from those for charging at the workplace. We do not set out the home charging reimbursement rules here. How the company can repay a director for electricity used at home depends on the arrangement, and you should confirm it with HMRC or your accountant before relying on any rate.
The chargepoint itself is different. HMRC's note says there is a separate 100% first-year allowance for plant or machinery for electric vehicle chargepoints. It has existed since 23 November 2016 for expenditure on chargepoints and is extended to the same end dates as the car allowance: 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax. The law is in section 45EA of the Capital Allowances Act 2001. If the company is installing a chargepoint at its premises, the cost can be deducted in full in the year of installation if it is incurred by then. Whether a chargepoint at a director's home qualifies is a separate question to settle before the installer is booked.
Running costs that arrive after the purchase
Electric cars are no longer exempt from vehicle excise duty. A new electric car registered on or after 1 April 2025 pays a first-year rate of £10, then the standard annual rate, currently £195, from the second year.
The Expensive Car Supplement applies to new electric cars with a list price of £40,000 or more. It is an additional charge, currently £425 a year, for five years starting from the second year of registration. Our £40,000 example sits exactly on the line, so it would be caught. If you are choosing between two models, a list price just under £40,000 avoids the supplement.
Salary sacrifice, briefly
Salary sacrifice is a different route: an employee gives up part of their pay in return for a car provided by the employer. It is built mainly around employees, and the benefit in kind charge still applies to the car. One salary sacrifice provider illustrates a Tesla Model Y at £609 a month on a 36-month lease with 10,000 miles a year, maintenance included, for a 40% taxpayer. The provider says it saves £379 in income tax and £19 in National Insurance, while £60 a month of benefit in kind tax is still payable. Those are the provider's own figures for an employee, not a prediction for a director who owns the company.
If you are the only director and shareholder, the simpler question is usually whether the company should buy or lease the car, which is what the rest of this guide covers. If you employ staff and want to offer an electric car as a benefit, salary sacrifice is worth a separate conversation with an adviser.
Company car or personal purchase: what to compare
We have not given a single winning number, because the answer depends on your company's Corporation Tax rate, your income tax band, the Class 1A rate, the car's price and how long you keep it. We can, though, give you the list of things to put on each side.
Company buys the car
- The company's tax saving from the 100% allowance: the purchase price multiplied by its Corporation Tax rate.
- Less your yearly benefit in kind tax, from the table above.
- Less the company's Class 1A National Insurance, net of Corporation Tax relief.
- Less the vehicle excise duty and any Expensive Car Supplement.
- The cash the company has tied up in the car.
You buy the car personally
- You pay from income that has already been taxed.
- There is no benefit in kind charge and no Class 1A cost.
- There is no capital allowance for the company, since it did not buy the car.
- You carry the same vehicle excise duty.
The company route usually looks better when the car is electric and the rate is low, because the benefit in kind charge is small compared with the price of the car. The case weakens as the rate climbs to 9% and as the allowance deadline passes. Run the numbers for the years you expect to keep the car, not only the first.
What to do next
- Find the P11D value (the list price including VAT and options) and check the benefit in kind rate for each year you will drive the car.
- Work out your income tax band, including the effect of adding the benefit to your income.
- Check your company's Corporation Tax rate and the current Class 1A rate on GOV.UK.
- Decide whether the purchase can happen before 31 March 2027.
- Ask your accountant about the VAT, lease and home charging points above.
If you want to see which of the director's costs can be run through a limited company, our guide to contractor expenses in a limited company covers the wider picture, and trivial benefits for directors explains a different benefit with its own limits.
Frequently Asked Questions
What is the benefit in kind rate for an electric car in 2026-27? It is 4% for a zero-emission car. The rate for 2025-26 was 3%, and it rises to 5% in 2027-28.
Does my company pay anything on the car as well as me? Yes. The company pays Class 1A National Insurance on the benefit. The rate is set by HMRC, so take the current figure from GOV.UK when you work out the cost.
Can the company claim the whole cost of an electric car against its profits? For a new zero-emission car, the 100% first-year allowance lets the company deduct the full cost in the accounting period of purchase. HMRC's note gives 31 March 2027 as the end date for Corporation Tax purposes.
Is there a separate allowance for the chargepoint? Yes. There is a 100% first-year allowance for plant or machinery for electric vehicle chargepoints, running to the same dates as the car allowance.
Do electric company cars pay road tax? Yes. New electric cars registered from 1 April 2025 pay £10 in the first year and then the standard rate, currently £195. List prices of £40,000 or more also pay the £425 Expensive Car Supplement for five years from the second year.
If you run a contractor limited company and want the accounts to reflect the car properly, our accounts for contractors page is the place to start.