The tax benefits of going electric

Electric vehicles are becoming an increasingly popular choice for businesses and individuals. But, if you haven’t “gone electric” just yet you’ll need to act fast to avoid missing out on some valuable tax incentives.

Tax savings for businesses investing in electric vehicles

Businesses purchasing electric vehicles or installing charging infrastructure can currently benefit from 100% first-year capital allowances on qualifying expenditure.

This allows eligible businesses to deduct the full cost of qualifying investments from their taxable profits in the accounting period in which the expenditure is incurred, rather than spreading the tax relief over several years.

The relief applies to new and unused zero-emission cars and qualifying electric vehicle charging equipment. However, it is currently due to end on 31 March 2027 for Corporation Tax purposes and 5 April 2027 for Income Tax purposes.

The extension announced in the November 2025 Budget gave businesses an additional year to benefit, but no further extension was announced in the October 2026 Budget.

For businesses planning to replace company vehicles, transition their fleets to electric or install workplace charging facilities, reviewing the timing of investment could therefore offer a valuable tax-planning opportunity.

Other capital allowances may remain available after the deadline, but businesses will no longer be able to claim this particular 100% first-year allowance.

The personal tax benefits of an electric company car

It isn’t just businesses that can benefit from the tax advantages of electric vehicles. Employees and company directors choosing an electric company car can also benefit from favourable tax treatment.

One of the biggest advantages is the relatively low Benefit-in-Kind (BiK) rate applied to fully electric company cars. For the 2026/27 tax year, the BiK rate is 4% of the vehicle’s list price, rising to 5% in 2027/28. This compares favourably with the rates applied to most petrol and diesel company cars, which can be as high as 37%, depending on the vehicle’s emissions.

The BiK rate is used to calculate the taxable value of a company car provided for private use. The employee then pays Income Tax on this amount at their applicable tax rate.

For higher-rate taxpayers in particular, choosing an electric company car could therefore result in a considerably lower tax bill compared with a traditional petrol or diesel vehicle.

Could salary sacrifice make an electric car more affordable?

Another option worth exploring is an electric vehicle salary sacrifice scheme. These arrangements allow employees to exchange part of their gross salary for a non-cash benefit, such as an electric car. As electric vehicles benefit from favourable BiK treatment, salary sacrifice can make accessing a new vehicle more affordable and tax-efficient.

However, the savings will depend on the employee’s salary, the vehicle selected and the terms of the scheme. Employees should also consider the impact on their contractual salary and other benefits before entering into an arrangement.

Employers may also benefit from offering these schemes as a way to support staff, encourage greener travel and introduce electric vehicles without necessarily purchasing an entire fleet themselves.

Make sure you don’t miss out

With the 100% first-year capital allowance for qualifying electric vehicle investments due to expire in spring 2027, businesses should review their plans sooner rather than later. Meanwhile, the favourable company car tax treatment available to employees and directors continues to make electric vehicles an attractive option.

The tax implications will vary depending on individual circumstances, so taking professional advice before committing to a purchase or changing an existing arrangement is important.

If you’re considering investing in an electric vehicle or charging infrastructure, speak to the tax team at Monahans to understand the tax reliefs available and how you could make the most of them.