Are electric cars for directors of limited companies worth it?
Time to go electric?
Company cars have historically been deeply unfashionable. Before electric cars, most company directors and employees found that they were better off buying a car personally and then claiming the associated expenses.
Concern for the environment was the reason why a more punitive tax regime was introduced. Tax was tethered to the value of the car and its CO2 emissions.
However, with car manufacturers introducing more varieties of electric vehicle, at different price-points, could the trend be turning full-circle?
Improvements in electric vehicles (EVs) has reignited the debate on company cars, and whilst there are tax changes for 2025-26, an electric company car may be a great solution.
New tax legislation for electric company cars in 2025-26:
- Benefit-in-Kind (BIK) tax for pure electric vehicles remains highly favourable. In 2025-26, drivers of pure electric company cars will benefit from a very modest 3% BIK tax rate
- Hybrid vehicles with CO2 emissions between 1-50g/km and an electric range of over 70-129 miles will see a 6% BIK rate for 2025/26. This could be an interesting option for those company car drivers who do not wish to completely walk-away from either petrol or diesel.
- For other hybrid vehicles the BIK tax rates vary depending on their specific emission levels and electric ranges.
- For 2026, the BIK rates for pure electric vehicles will rise incrementally by 1% each year, reaching 5% in 2027/28. Hybrid vehicles will also see a similar increase in BIK rates. Despite these increases, electric & hybrid vehicles will remain a highly tax-efficient choice compared to their petrol or diesel counterparts.
- Road tax is to be payable on electric & hybrid vehicles from 2025 onwards. Whilst rates are still to be confirmed they will be from £190 per annum.
- Charging infrastructure. 100% first-year capital allowances for installing charging points is available until 2025, although this tax relief may be extended. This makes it easier for companies to support their employees’ shift to electric driving.
Renaissance of the company car?
With these tax advantages in place a continued rise in the demand for electric & hybrid vehicles in the business world is likely. More socially responsible fleet managers may see this as an opportunity to electrify their fleets, contributing to their sustainability goals while taking advantage of significant tax savings.
As the UK accelerates its shift towards electric mobility, with more charging points being installed across the country and continued improvements in the range and affordability of electric vehicles, we could see a true renaissance of the company car.
For a review of your company car tax status or that of your existing fleet, call us on (0161) 980 8788 or email murray@alexanderknightaccountants.co.uk
