Are Electric Cars Tax Deductible

Learn if electric cars are tax deductible in the UK and how the rules apply to sole traders, limited companies and directors.

As the UK moves toward a low-carbon future, electric vehicles (EVs) have become an increasingly popular choice for both private and business use. With attractive tax incentives and lower running costs, many business owners are considering switching to electric. But are electric cars tax deductible?

The short answer is yes. Electric cars can be tax deductible in the UK, but the tax treatment depends on the structure of your business, whether the car is purchased or leased, and how the vehicle is used. HMRC offers favourable allowances for electric vehicles, particularly for companies purchasing new fully electric cars.

This guide explains when electric cars are tax deductible, how capital allowances and benefit in kind tax apply, and what to consider if you're self employed, a company director or running a fleet.

Electric Cars for Sole Traders and Partnerships

If you are self employed and buy a car to use in your business, you can claim capital allowances to reduce your taxable profits. For electric cars, this is especially advantageous.

1. Capital allowances for electric cars

Fully electric cars (zero CO₂ emissions) are eligible for 100% first-year allowances. This means you can deduct the full cost of the vehicle from your profits in the year of purchase.

For example:

  • You buy a new electric car for £35,000

  • You use it entirely for business

  • You can claim the full £35,000 as an allowable expense

  • Your taxable profit is reduced accordingly

If the vehicle is used partly for personal reasons, you must apportion the claim based on actual business use. You cannot claim for private journeys, including commuting.

2. Leasing an electric car

If you lease an electric vehicle for business use, the monthly lease payments can be claimed as allowable expenses. Again, you must apportion for personal use if applicable.

Unlike with petrol or diesel cars, there is no lease restriction for electric vehicles with zero emissions. For other vehicles, lease costs are often restricted by a percentage disallowance. Electric cars avoid this restriction, making them more tax efficient.

3. Running costs

You can also claim for:

  • Insurance

  • Servicing and repairs

  • Vehicle excise duty (if any)

  • Charging costs for business mileage

If you charge the car at home, you can only claim a proportion of the electricity costs that relate to business use. This requires a reasonable estimate or meter readings.

Alternatively, you can use simplified mileage rates, currently 45p per mile for the first 10,000 miles and 25p thereafter. If you choose this method, you cannot claim capital allowances or running costs separately.

Electric Cars for Limited Companies

If a limited company purchases an electric vehicle, it is entitled to 100% full expensing on qualifying cars, or 100% first-year allowances, depending on the circumstances.

1. Full expensing and Corporation Tax relief

From April 2023, companies purchasing new and unused electric cars for business use can claim full expensing. This means:

  • The full cost of the car can be deducted from taxable profits

  • Corporation Tax liability is reduced significantly

  • The car must be used in the course of business

  • The car must not be leased out or used mainly for personal benefit

This is only available for cars purchased outright. Leased cars do not qualify for capital allowances but lease payments are still deductible.

2. Benefit in kind tax for directors and employees

Electric cars provided by a company and made available for personal use are treated as a benefit in kind (BIK). The good news is that electric cars benefit from very low BIK rates compared to petrol or diesel cars.

For the 2024/25 tax year:

  • The BIK rate for fully electric cars is 2%

  • It is based on the car’s list price (not purchase price)

  • The rate is fixed until April 2025, with modest increases planned thereafter

For example:

  • A company provides a Tesla Model 3 with a list price of £45,000

  • The annual taxable benefit is £900 (£45,000 × 2%)

  • A basic rate taxpayer pays £180 per year in tax

  • The company pays Class 1A NICs at 13.8% (£124.20)

This compares very favourably to a petrol or diesel car, which might attract a BIK rate of 20 to 37%.

3. VAT on electric cars

VAT cannot usually be reclaimed on the purchase of a car unless it is used 100% for business, with no personal use at all. This is difficult to prove for most businesses.

However, VAT can be reclaimed on:

  • Charging costs (if billed separately and used for business)

  • Lease payments (50% of VAT on the finance element)

  • Maintenance costs and servicing

Companies should keep all relevant VAT invoices and ensure business use is clearly documented.

4. Workplace charging facilities

If a business installs a charging point at its premises for employees or directors to use, the cost is tax deductible and no benefit in kind arises if the charging is provided at or near the workplace.

If the business installs a charge point at a director’s or employee’s home, it may count as a benefit in kind unless the arrangement qualifies under a salary sacrifice scheme or is reimbursed correctly.

Electric Vans and Commercial Vehicles

Electric vans follow different rules to cars. If an electric van is used for business purposes, it is treated as a commercial vehicle.

1. First-year allowances
New electric vans qualify for 100% first-year capital allowances, so businesses can deduct the entire cost in the year of purchase.

2. Benefit in kind for private use
If the van is available for personal use (including commuting), a van benefit charge may apply, but HMRC currently offers a 0% BIK rate for electric vans, making them highly tax efficient.

3. VAT recovery
VAT can usually be reclaimed on the purchase of a van if it is used for business. The rules are more relaxed than for cars.

Should You Buy Personally or Through Your Company?

There are advantages and disadvantages to owning an electric car through a company.

Pros:

  • 100% tax relief on purchase cost

  • Low benefit in kind tax

  • No lease disallowance

  • Full expensing or first-year allowances

  • Corporation Tax savings

Cons:

  • BIK still applies (though low)

  • Loss of private capital allowance claims

  • VAT recovery limited unless no private use

  • Personal use must be documented carefully

If you are a company director, buying the car through the business is often more tax efficient than buying personally, especially if the car will be used for a significant amount of business travel.

Conclusion

Electric cars are tax deductible in the UK when used for business. Whether you are a sole trader or a limited company, there are generous allowances and tax incentives for switching to electric. You can deduct the full cost of purchase through capital allowances, claim running costs, and benefit from very low benefit in kind tax if the car is made available for personal use.

As with all tax reliefs, accurate records and correct documentation are essential. Make sure to apportion private use, retain invoices and understand which reliefs apply to your business structure. With the right planning, electric vehicles can deliver both environmental and financial benefits. If in doubt, speak to your accountant before making a purchase decision.