Buying an electric car through your company

Buying an electric car through your own limited company is becoming the increasingly more popular choice over buying a standard petrol or diesel car. In fact, the Society of Motor Manufacturers and Traders have reported that the majority of electric car sales are made by businesses more so than private individuals. This is largely attributed to the UK government offering generous tax incentives to those businesses that are helping to achieve their net zero goals by 2050. If you’ve been considering buying an electric car through your company as a company car, then you may want to act sooner rather than later, as some of the tax benefits will be ending next year and it’s unclear whether the government will introduce new incentives or not.

Can I buy an electric car through my company?

Yes, there are no restrictions on being able to buy an electric car through your own company. Our article on buying a personal car vs a company car explains why, ordinarily, buying a car through your business is not always the best decision as it can end with a hefty tax bill if you plan on being able to use the car for personal travel as well. When it comes to electric cars however, the tax breaks make it much more affordable to do so, but you may still want to weigh up that the preferential tax treatment towards electric cars may change in the future.

Is there still an electric car grant available?

The Plug-in Car grant was first made available by government in 2011. It allowed for up the maximum of £5,000 be deducted from the cost of buying a new electric car that is worth no more than £32,000 including VAT. Since then, the government revised the generosity of the grant value multiple times until it was reduced down to £1,500 in 2021. It was eventually scrapped altogether in 2022. Whilst you can no longer receive a grant to save against the cost of purchasing a new electric car, there are still other grants available to help with associated costs such as the electric vehicle charge point grant which offers up to a maximum of £350 against the cost of a charge point being installed at your home.

How can I claim the cost of an electric car through my company?

When you buy an electric car through your company as a business asset, you’re able to claim the cost of it under capital allowances by using the First Year Allowance (FYA) method. The FYA means the entire cost of the car can be deducted against your company’s profits in the financial year that you made the purchase to reduce your corporation tax liability. You can only use this method of accounting where you have purchased a brand-new electric car as opposed to buying a second-hand electric car or have been gifted an electric car.

It is a considerable advantage in this instance to buy an electric car over a petrol, diesel or hybrid car because only a fully electric car qualifies under FYA. All other types of cars must be claimed against your company’s profits through the Writing Down Allowance which only permits you to deduct a portion of the purchase price for each year you own the car. Vehicles come under the category of ‘Special Rate Pool’ which only allows you to claim 6% of the cost of the car each year until the total value of the car has been claimed.

Can I reclaim VAT when I buy an electric car through my company?

You must be VAT registered in order to be able to reclaim VAT on purchases or services. When it comes to the VAT on electric cars bought through a company, you’ll be able to reclaim any VAT paid so long as the car is exclusively used for business purposes. This does not include driving the car as part of your day-to-day commute to and from work. Should the car be used for any personal travel, you’ll be unable to reclaim any of the VAT paid.

What if I lease instead of buy an electric car though my company?

Buying a new electric car outright can be expensive, and so you may choose to lease an electric car instead. You won’t be able to claim the cost as capital allowance because you do not own the asset, but you’ll be able to claim the monthly lease cost as a regular business expense which will still reduce your profits, and therefore your corporation tax.

What’s more, if you choose to lease an electric car, you’ll be able to reclaim 50% of the VAT where you use the car for both business and personal travel. You’re entitled to claim the full 100% of VAT paid where the car has been bought solely for business travel.

Do I have to pay P11d tax on an electric car bought through my company?

P11d tax is also known as benefit-in-kind (BIK) tax and is applied to many benefits that you can enjoy personally that are provided by your employer. BIK tax applies to receiving a company car which you can use for personal travel (does not apply to company cars which are restricted to business use only). When it comes to electric cars, BIK tax still applies but at a much lower rate than petrol or diesel cars. How much tax you need to pay on an electric car is calculated through the following formula:

P11d value of the electric car (the list price of the electric car) x the BIK percentage rate (set by HMRC) x employee’s personal income tax rate

For the tax year 2024/25 electric cars with zero emissions have a BIK percentage rate of just 2% of the car’s list price. This is due to increase by 1% year on year from 2025 until 2028.

What’s more, the employer providing the electric car as a benefit will be subject to employer’s national insurance (NI). This is calculated through the following formula:

P11d value of the electric car (the list price of the electric car) x the BIK percentage rate (set by HMRC) x 13.8% (Class 1A employer’s NI contribution).

Note, that even though NI was reduced in January 2024 from 12% to 10%, the reduction only affects employee class 1 NI and so therefore employer’s NI rate of 13.8% still applies.

Where you receive an electric car as part of a salary sacrifice scheme, you will still need to pay BIK tax. However, because the BIK tax is so low for electric cars, you will find that receiving an expensive electric car is far cheaper to do so than its equivalent of a petrol or diesel car and you’ll be paying less income tax and NI as a result of attaining one through salary sacrifice.

Do I have to pay P11d tax to charge an electric car?

With petrol and diesel cars that have been purchased through a limited company, any fuel used that is paid for by the company and is available for personal travel is liable to BIK tax by the employee and NI by the employer. If an employee drives their own personal car for business purposes, then they’re entitled to reclaim the cost of every business mile driven from their employer without incurring BIK tax unless the employer offers more than HMRC’s approved mileage allowance rates (45p for the first 10,000 business miles per tax year, and 25p per business mile thereafter).

When it comes to electric cars though, the rules on P11d tax are a bit more complicated and it all depends on who owns the car, where it is charged, who pays for the charge, and whether the car is used for personal travel. The various scenarios are explained below:

• Where a company car has been made available to an employee for both personal and business travel, the employer is able to provide for the cost of charging the car without it amounting to a taxable benefit. If the employee charges the company car at home and pays for their own electricity then the cost to charge the company car can be reimbursed by the employer without incurring BIK tax so long as it can be shown that the electricity used was only for charging the company car and not for example, a personally owned electric car.
• If an employee owns their own electric car that is used purely for personal travel and the employer pays for the electricity to charge the car, then this is a taxable benefit. However, if the employee owns their own electric car, pays to charge it and uses the car for business travel, then they are entitled to claim the authorised mileage allowance payments from their employer without incurring BIK.
• Should the employee own their own electric car that is used either for personal travel only, or mixed personal and business travel but is charged at the workplace and electricity is paid for by the employer, then this does not amount to a taxable benefit.
• However, where an employee uses their own electric car, any electricity paid for via an employer provided charge card so that the car can be charged at a charging point that is not at the employee’s home or the employer’s workplace is classed as a taxable benefit. For any business miles travelled, authorised mileage allowance can be paid to offset this.

What are the advantages of buying an electric car through a limited company?

One of the main advantages of buying an electric car through a limited company is being able to reduce the company’s corporation tax by the full cost of the vehicle through FYA. This is unavailable to those companies who buy petrol or diesel cars as they must use the WDA instead.

Secondly, electric cars currently benefit from far more favourable BIK rates at just 2%. Even though this is due to rise 1% year on year from 2025, it is still significantly less than the BIK rate of petrol or diesel cars making them much more affordable for the employee.

Thirdly, there are practical cost-saving advantages to buying an electric car. Charging an electric car is almost always cheaper than filling a car with fuel. Electric cars are cheaper to maintain because a battery motor engine requires no engine oil change or engine part replacements as it is not affected by the same wear and tear as internal combustion engine cars are. Up until 1^st April 2025 electric cars will also be exempt from paying Vehicle Excise Duty (or road tax as it’s more commonly referred to) and up to March 2025 will remain exempt from the expensive car supplement which is a surcharge of £355 on all new cars with a list price of £40,000 and over.

What are the disadvantages of buying an electric car through a limited company?

The main drawback of buying an electric car is the initial cost. Despite the lower running costs mentioned above as an advantage, electric cars on average are 30% – 40% more expensive than petrol or diesel cars which is certainly off putting, or simply unaffordable depending on your budget.

You should also not underestimate that buying an electric car through hire purchase or business contract purchase is a long-term commitment. Should you decide to close down your limited company during the term of the contract, you may not be able to transfer ownership of the car to yourself as the agreement will have been made between a limited company rather than an individual.

As Oxford-based accountants, we have to point out that local authorities are tasked with achieving net zero emission targets by 2050. For the Oxford area, many of the initiatives that have been introduced make no distinction between electric vehicles and petrol/diesel vehicles, for example the Low Traffic Neighbourhoods (LTNs) or bus gates. This would mean that purchasing an electric car may have no added benefit when it comes to these restrictions.

Get help with capital allowances for your limited company

If you’re considering buying an electric car or other asset through your limited company, then make sure you understand whether it’s tax-deductible and how to account for it through capital allowances. Our team of local Oxford accountants can provide confirmation on your tax liability should any BIK tax arise as well as offer holistic tax and accounting support for your company. To receive a quote, get in touch via our contact form.