Electric Company Car Tax 2026/27: BIK, VED & Capital Allowances

A lot of directors who looked at electric company cars two or three years ago, saw a 2% benefit-in-kind rate, and filed it away as "worth doing eventually" are now wondering if the moment passed. It hasn't, but the numbers have moved, and it's worth working through what you'd actually pay today rather than going on what you remember reading in 2023.

What you pay: the benefit-in-kind calculation

If your company buys or leases a car and you use it privately (which includes commuting), HMRC treats that as a taxable benefit. The amount is worked out as:

P11D value (list price, including VAT and most factory options, minus up to £5,000 of any capital contribution you make) × the "appropriate percentage" for the car's emissions × your marginal income tax rate.

For a fully electric car, the appropriate percentage is set well below anything with a combustion engine, but it's on a published upward path that HMRC confirmed through the Autumn Statement 2022 and extended in later Budgets:

2025/26: 3%
2026/27: 4%
2027/28: 5%
2028/29: 7%
2029/30: 9%

So take a £40,000 electric car in the 2026/27 tax year. The taxable benefit is £40,000 × 4% = £1,600. A basic rate taxpayer pays 20% of that, £320 a year, or £26.67 a month, for private use of a £40,000 car. A higher rate taxpayer pays 40%, £640 a year. Compare that with a petrol equivalent, where the appropriate percentage for most CO2 bands sits somewhere between 25% and 37%, and the same £40,000 car could generate a benefit-in-kind bill ten times higher.

The company also pays employer Class 1A National Insurance on the same cash benefit, at 15% for 2026/27. On the £1,600 benefit above, that's £240 for the company, still a fraction of what the equivalent petrol car would cost in NI.

The capital allowance: still 100%, for now

If the company buys a new, unused, fully electric car outright (or on hire purchase, where ownership transfers), it can claim a 100% First Year Allowance. That means the entire cost comes off taxable profits in the year of purchase, rather than being written down gradually. A £40,000 car bought by a company paying the 25% main corporation tax rate saves £10,000 in tax in that first year.

This relief has been extended more than once and was due to expire, but the Autumn Budget 2025 pushed the sunset date back again: it now runs until 31 March 2027 for companies (5 April 2027 for unincorporated businesses). After that, new electric cars are expected to move into the 18% main-rate writing-down allowance pool instead of qualifying for the 100% deduction, unless it's extended again, which is exactly what's happened twice already. If you're weighing up timing a purchase, that March 2027 cut-off is the one to watch, not any date you might have seen quoted from an older article.

Leasing works differently: the leasing company claims the allowances, not you, and your business instead deducts the lease rental as a normal expense. For electric cars there's no restriction on that deduction (the 15% disallowance that applies to leased cars with CO2 emissions above 50g/km doesn't apply to zero-emission vehicles).

Road tax is no longer zero

Electric vehicles lost their Vehicle Excise Duty exemption on 1 April 2025, which catches out some directors who are still budgeting on the old "EVs are road tax free" assumption. As of 2026/27:

The first-year rate for a new EV is £10. From the second year onwards, it moves to the standard rate, £200 a year, the same standard rate that applies to petrol and diesel cars.

There's also an Expensive Car Supplement that now applies to EVs: if the list price when new was over £50,000, you pay an extra £440 a year on top of the standard rate for five years starting from the second year of registration, so £640 a year rather than £200. That threshold is specifically for electric cars; the equivalent threshold for petrol and diesel cars sits lower, at £40,000, so an EV actually gets more headroom here. Still, it's a real cost that didn't exist before April 2025, and it's easy to overlook if you're pricing up a higher-spec electric car for the business.

Salary sacrifice still gets favourable treatment

If you're taking the car through a salary sacrifice arrangement rather than the company simply providing it, electric cars have a specific carve-out. HMRC's general anti-avoidance rules for salary sacrifice (the Optional Remuneration Arrangement rules) normally tax the benefit at whichever is higher: the cash salary given up, or the normal benefit-in-kind value. Zero-emission cars are excluded from that comparison, so an EV taken through salary sacrifice is still taxed at the low 3-9% scale above, not at the value of the salary sacrificed. That exclusion is a large part of why EV salary sacrifice schemes became popular with employers in the first place, and it hasn't changed.

Where directors actually get this wrong

Two mistakes come up repeatedly. The first is assuming the appropriate percentage is fixed for the life of the car, when it actually applies per tax year, so your benefit-in-kind bill rises each April even if nothing about your car or your private use changes. Budget for that when you're comparing an EV against buying a car personally with a company car allowance instead.

The second is forgetting the private contribution rule. If you pay something towards the capital cost of the car yourself (up to £5,000 counts towards reducing the P11D value used in the calculation), that has to be recorded properly and reported. Directors sometimes pay a contribution informally, out of DLA drawings or a personal transfer, without it ever showing up correctly in the company's records or the P11D. That's the kind of thing that looks fine until HMRC asks for the paperwork behind a benefit-in-kind figure.

How Founders Ledger helps

None of this is complicated in principle, but it depends on the company's records actually reflecting what happened: what the car cost, what capital allowance was claimed and when, what benefit was reported on the P11D, and what (if anything) you contributed personally. Founders Ledger keeps your bookkeeping and tax estimates live rather than reconstructed at year-end, so when it's time to work out a benefit-in-kind figure or check whether a capital allowance was actually claimed, the numbers are already there instead of being pieced together from old invoices.

You can see how it fits into your company's day-to-day admin at foundersledger.co.uk.

This article is correct at the time of writing (September 2026) and is provided for general information only. It isn't personal financial or tax advice, and the figures here (benefit-in-kind percentages, capital allowance rules, VED rates) are set by HMRC and DVLA and can change. Speak to a qualified accountant before buying or leasing a car through your company.