Electric vehicles qualify for generous capital allowances, making them highly tax-efficient for businesses. Here's how to maximise the benefit.
What Are Capital Allowances?
The Basics
Capital allowances let businesses deduct the cost of assets from taxable profits:
Special Treatment for EVs
Electric vehicles get enhanced treatment:
First Year Allowances for EVs
What Qualifies
Zero-emission vehicles:
What doesn't qualify:
The 100% FYA
How it works:
| Purchase Price | FYA Deduction | Tax Saving (25% CT) |
|---|---|---|
| £30,000 | £30,000 | £7,500 |
| £50,000 | £50,000 | £12,500 |
| £80,000 | £80,000 | £20,000 |
You deduct the full cost in year 1 — no spreading over multiple years.
Comparison to Petrol/Diesel
Petrol/diesel cars go into pools:
| Emissions | Allowance Rate | £30,000 Car, Year 1 |
|---|---|---|
| 0g/km (EV) | 100% FYA | £30,000 |
| 1-50g/km | 18% Main pool | £5,400 |
| 50g/km+ | 6% Special pool | £1,800 |
EVs get immediate relief; petrol cars take years.
Charging Equipment
Also Qualifies for 100% FYA
EV charging points get the same treatment:
Example
| Item | Cost | FYA | Tax Relief (25%) |
|---|---|---|---|
| Workplace charger | £1,500 | £1,500 | £375 |
| Installation | £500 | £500 | £125 |
| Total | £2,000 | £2,000 | £500 |
Home Chargers for Employees
If employer pays for employee home charger:
Who Can Claim
Limited Companies
Sole Traders / Partnerships
Example by Business Type
£40,000 EV purchase:
| Business Type | Tax Rate | Tax Saving |
|---|---|---|
| Limited company | 25% CT | £10,000 |
| Sole trader (basic rate) | 20% | £8,000 |
| Sole trader (higher rate) | 40% | £16,000 |
| Partnership (mixed) | Varies | Varies |
Leasing vs Buying
Buying (Capital Allowances)
| Aspect | Treatment |
|---|---|
| Upfront cost | Full price |
| Tax relief | 100% FYA in year 1 |
| Ownership | You own the car |
| Depreciation | Your risk |
Leasing (Revenue Expense)
| Aspect | Treatment |
|---|---|
| Upfront cost | Deposit only |
| Tax relief | Deduct lease payments as expense |
| Ownership | Never own |
| Depreciation | Lessor's risk |
Which Is Better?
Depends on:
General guidance:
Timing Considerations
When to Claim
FYA claimed in the accounting period when:
Tip: Purchase near start of accounting period for earliest cash benefit.
Cash Flow Impact
Example: March year-end company, January purchase
| Event | Timing |
|---|---|
| Purchase EV | January 2026 |
| Year-end | March 2026 |
| File accounts | December 2026 |
| CT payment due | January 2027 |
| Tax saving received | January 2027 |
Gap between purchase and tax benefit: 12 months
Record Keeping
What You Need
| Document | Purpose |
|---|---|
| Purchase invoice | Proves cost and date |
| Registration document | Confirms zero emissions |
| Charging point invoices | Supports FYA claim |
| Installation receipts | Proves qualifying expenditure |
HMRC Requirements
Changes to Be Aware Of
Current Rules (to April 2025)
Future Changes
Check for updates:
Worked Example
Complete Scenario
Business: Small limited company
Purchase: Tesla Model 3 (£45,000) + workplace charger (£2,000)
Year-end: December 2026
| Step | Calculation |
|---|---|
| Total qualifying expenditure | £47,000 |
| FYA claimed | £47,000 |
| Taxable profit reduction | £47,000 |
| Corporation tax rate | 25% |
| Tax saving | £11,750 |
Effective cost after tax relief:
£47,000 - £11,750 = £35,250
Summary
| Item | FYA Available | Effective Cost Reduction |
|---|---|---|
| New electric car | 100% | 25% (CT) or 20-45% (IT) |
| New electric van | 100% | 25% (CT) or 20-45% (IT) |
| Charging equipment | 100% | 25% (CT) or 20-45% (IT) |
| Hybrid car | No (goes to pool) | Much slower |
| Petrol/diesel | No (6-18% pool) | Much slower |
The Bottom Line
Electric vehicles are exceptionally tax-efficient for businesses:
For a business buying a £50,000 EV, the tax saving is typically £12,500 (at 25% CT) — a 25% discount on the purchase price through tax relief alone.
Combined with low BIK for employees and cheap running costs, electric vehicles are the most tax-advantaged cars available to UK businesses.