HMRC have announced that, over the next few years, there will be increases in the rate at which electric vehicles are taxed as a benefit in kind. More detail below but, in short, buying an electric vehicle through your company remains a tax-efficient option.

How does my company benefit from an electric vehicle?

Your company may be eligible to claim a tax deduction of up to 100% for the cost of the car in the year it purchases the vehicle. The amount that can be deducted can fall between 6% and 100%, and depends on whether the vehicle is fully electric or a hybrid model, and also if the car is brand new or second hand. As covered below, the lowest benefit in kind rate is now 2%, rather than 1% as referred to in the 2022 blog.

In addition to this, we have written before about the additional costs that can be met by the company in respect of the car. These are tax deductible for the company and also save you the cost of meeting the expenses personally, meaning you may be able to reduce your dividend amount and pay less personal tax. Since this blog was originally published in 2022, the flat rate mileage allowance for electric vehicles has changed from 5p/mile to 7p/mile and vehicle road tax will no longer be nil for purely electric cars after 1 April 2025.

What is a benefit in kind and what changes are coming?

If you operate as a limited company and the company buys a car that you use for private purposes, a taxable benefit will arise – known as a benefit in kind (BIK). The BIK is calculated based on the car’s list price and CO2 emissions and for 2024/25 ranges from 2% to 37% of list price.

For 2024/25 the lowest BIK rate of 2% applies to fully electric vehicles. For a vehicle worth £50,000 this would equate to a taxable benefit of just £1,000 for 2024/25.

While the upper limit for BIK rates is set to remain at 37%, the lowest rate is increasing to 3% in 2025/26, 4% in 2026/27 and 5% in 2027/28. This means that your electric vehicle with a list price of £50,000 will equate to a taxable benefit of £1,500, £2,000 and £2,500 in those years.

If you take a tax-efficient director’s salary, this can be adjusted to accommodate the increased BIK, meaning you can still make best use of the tax allowances and rates.

If you are considering buying an electric car through your company and want to check the tax considerations, or you have already bought the car and want to ensure you claim all possible costs through your company, please get in touch.