It’s a question we’re being asked more frequently.

With the introduction of Vehicle Excise Duty for electric vehicles, the gradual increase in benefit in kind (BIK) percentages, and list prices still typically higher than petrol or diesel equivalents, the headline advantages are narrowing. That said, when you look properly at the numbers — particularly in owner-managed businesses, electric vehicles can still be extremely tax efficient when provided through a company. The detail matters.

Capital allowances: still a major advantage
From a company perspective, the most significant benefit remains the 100% first year allowance.

Businesses purchasing a brand-new electric car can claim 100% tax relief on the cost in the year of acquisition. The Energy First Year Allowance, originally due to end in March 2026, has now been extended to 31 March 2027 and there remains the possibility of a further extension.

To qualify:
- The vehicle must be new. The company must be the first registered owner (with limited relaxation for ex-demonstrators where the only prior owner was the dealership).
- The car must be purchased outright or via finance.

Compare this to non-electric vehicles. Depending on CO₂ emissions, these typically qualify for writing down allowances at 18% (reducing to 14% from April 2026) or 6% per annum on a reducing balance basis.

The contrast is significant. Electric vehicles allow companies to accelerate tax relief into year one, which can materially improve cash flow and corporation tax positioning.

Electric vans also qualify for 100% first year allowances. That said, standard vans already attract 100% Annual Investment Allowance, so the differential is less pronounced there.

Benefit in Kind rates: increasing, but still low
Benefit in Kind rates for company cars can reach as high as 37% of list price for petrol and diesel vehicles.

For electric vehicles, the current BIK rate is 3%.

It will rise to:
4% in 2026/27
5% in 2027/28

Then increase by 2% per year for the following two years.

Even with those increases, electric vehicles remain significantly more tax efficient from an employee perspective.

For directors of owner-managed businesses, this is often where the real advantage lies. A higher list price is less of an issue if the taxable benefit percentage remains low.

Salary sacrifice arrangements can also continue to be used for electric vehicles, allowing employers to offer them as a benefit without triggering additional employer cost, provided the structure is implemented correctly.

The fuel benefit charge: where electric still wins
The fuel benefit charge is often misunderstood and often expensive. Where an employer pays for all fuel for a company car, a fixed fuel benefit multiplier (£28,200) is applied and multiplied by the car’s BIK percentage.

At a 37% rate, that results in a taxable benefit of £10,434 per year. For a higher-rate taxpayer, that’s a meaningful personal tax cost. In practice, employees need to cover very high private mileage before this becomes worthwhile. In many cases, they are better off paying for fuel personally and reclaiming business mileage at approved rates.

Electric vehicles do not attract a fuel benefit charge because they do not use fuel. That is a fundamental structural advantage.

However, charging does require careful consideration.

Charging and reimbursement: getting it right
There is no fuel benefit charge for electric vehicles, but charging arrangements still need to be structured correctly.

No BIK arises where:
- The company vehicle is charged at the employer’s premises.
- The employer reimburses the employee for home charging at actual cost (with supporting evidence).
- A charge card is used for the company car.

This applies regardless of personal use.

If identifying the actual home electricity cost is difficult, employers can alternatively reimburse at 7p per business mile.

For privately owned electric vehicles:
- Charging at the workplace is not a taxable benefit (if available to all employees).
- Business mileage can be claimed at 45p per mile for the first 10,000 miles and 25p thereafter.
- A charge card for a privately owned vehicle is a taxable benefit, although business mileage claims can offset this.

Installation of charging points is another area where structuring matters:
- If the employer installs a charging point at the home of an employee with a company electric vehicle, there is no BIK charge.
- If installed for an employee with a privately owned electric vehicle, there will be a taxable benefit based on the installation cost.
- The employer can claim 100% capital allowances on workplace or qualifying home installations.

There may also be Government grants available towards vehicles or charging infrastructure, although availability continues to evolve and should be checked at the time of purchase.

The commercial view
Electric vehicles can still form part of a highly efficient remuneration and extraction strategy.

The upfront corporation tax relief remains attractive. The BIK percentages, while increasing, are still materially lower than petrol and diesel equivalents. The absence of a fuel benefit charge continues to provide structural advantage.

What has changed is that the decision is no longer automatic.

Higher list prices, the introduction of road tax, and gradually rising BIK rates mean the overall commercial picture needs reviewing. The right answer depends on profit levels, marginal tax rates, personal mileage patterns and wider cash flow priorities.

If you are reviewing company car arrangements or considering a change, it is worth modelling the numbers properly before committing.