Electric company cars still offer tax advantages, but rising benefit-in-kind rates and new mileage charges mean businesses need to look beyond today’s tax bill.

In a recent webinar, Electric Cars - Tax Implications of Going Green August 2026, Emma Rawson explained that electric cars remain attractive from a tax perspective, particularly when compared with petrol alternatives. But the gap is changing.

For accountants advising businesses, the important question is no longer simply whether an electric vehicle saves tax today. You also need to consider what happens over the three, four or five years the business expects to keep it.

Benefit-in-kind percentages are rising. Electric cars now pay Vehicle Excise Duty (VED). A new mileage-based charge is due from April 2028. Hybrid company car taxation is also changing significantly.

Here are five areas to consider when clients are weighing up their options.

1. New electric cars can still qualify for a 100% first-year allowance

Cars generally receive less generous capital allowance treatment than other business assets. They do not normally qualify for Annual Investment Allowance or full expensing.

There is, however, an important exception for qualifying zero-emission cars.

Businesses can currently claim a 100% first-year allowance when they buy a qualifying new and unused electric or zero-emission car. The current deadline is 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax.

A car can still be considered unused where it has limited mileage from testing, delivery or demonstration use. A genuinely second-hand electric car will not qualify for this first-year allowance.

That distinction matters when clients compare the cost of buying new against purchasing a used electric vehicle.

Sole traders and partners also need to consider private use. Where a business asset has both business and personal use, the capital allowance claim must reflect the business proportion.

2. Electric company car tax remains favourable, but rates are increasing

Where a company car is available for private use, the benefit-in-kind calculation broadly starts with the car's list price and applies the relevant percentage.

The key word is list.

A business may negotiate a substantial discount when buying the vehicle, but that does not normally reduce the list price used for the company car calculation.

For a zero-emission company car, the appropriate percentage is 4% for 2026/27. It rises to 5% in 2027/28, then increases further before reaching 9% in 2029/30.

Electric cars therefore continue to receive substantially different treatment from many petrol and diesel cars. But businesses should not base a multi-year vehicle decision on the current year's percentage alone.

Run the numbers across the expected ownership or lease period.

The same principle applies when comparing purchase prices. Electric cars can have a higher initial list price than an apparently equivalent petrol model. Tax is only one component of the overall cost.

3. Charging costs depend on who owns the car

Charging is one of the areas where electric vehicle tax becomes more nuanced.

For an electric company car, payments connected with charging can receive favourable treatment. This can include workplace charging and, subject to the relevant rules, reimbursement for home or public charging.

Employers also have HMRC's advisory electric rates available when reimbursing business mileage in fully electric company cars.

From 1 September 2026, those rates are:

• 7p per business mile for home charging
• 15p per business mile for public charging.

Where both types of charging are used, HMRC allows employers to apportion the mileage on a fair and reasonable basis.

Alternatively, an employer may reimburse actual charging costs where the necessary evidence supports the amount.

The position changes when an employee uses their personally owned electric car for business.

For business mileage in an employee's own vehicle, the approved mileage allowance payment rules can apply. Workplace charging also has its own exemption, subject to conditions including availability to employees generally.

The practical lesson is simple: establish who owns the vehicle before deciding how charging costs should be treated.

4. VED and the new mileage charge change the longer-term calculation

Electric vehicles have been subject to VED since April 2025.

For electric, zero or low-emission cars first registered on or after 1 April 2025, the first-year rate for 2026/27 is £10. The standard rate applying after the first year is currently £200. An additional expensive car supplement can also apply in relevant cases.

Another significant change arrives from 1 April 2028.

The government is introducing Electric Vehicle Excise Duty (eVED), a mileage-based charge which will sit within the VED system. The announced rates are:

• 3p per mile for battery electric cars
• 1.5p per mile for plug-in hybrid cars.

The charge is intended to operate through the VED cycle. Registered keepers will estimate mileage, with the position subsequently reconciled against actual mileage.

That creates another cost to incorporate when assessing vehicles that will still be on the road from April 2028.

It may also require particular attention when buying used electric cars because the system links the mileage position to the vehicle's registered keeper and VED cycle.

5. Be particularly careful with hybrids approaching 2028/29

Plug-in hybrid company cars deserve separate attention.

For 2026/27, cars producing between 1g and 50g of CO2 per kilometre have benefit-in-kind percentages influenced by their electric-only range. The longer the qualifying electric range, the lower the percentage can be.

That changes significantly from 2028/29.

Cars producing between 1g and 50g of CO2 per kilometre will move to an appropriate percentage of 18% in 2028/29 and 19% in 2029/30.

That means employees currently driving qualifying hybrids with relatively low benefit-in-kind percentages could face a marked increase.

Accountants advising on a new hybrid now should therefore model the tax position beyond the next year or two. A vehicle that appears attractive under today's rules may look quite different during the later years of its lease or ownership.

Do not make an electric vehicle decision on one tax break

There are still clear tax differences between fully electric cars and higher-emission alternatives.

But the direction of travel matters.

Benefit-in-kind percentages for zero-emission cars are increasing. Electric vehicles now fall within VED, while eVED introduces an additional mileage-based cost from April 2028. Hybrids face particularly significant benefit-in-kind changes.

For accountants, that makes forward planning more important.

When a client asks whether an electric company car makes sense, model the whole expected ownership period. Consider the purchase or lease cost, capital allowances, benefit-in-kind charges, employer NICs, charging arrangements, VAT and vehicle taxes together.

The answer may still favour electric. But it should be based on the numbers the client is likely to face over the life of the vehicle, rather than the tax position on the day they buy it.

Frequently asked tax questions

Are electric company cars still tax-efficient in the UK?

Electric company cars can still receive favourable tax treatment compared with many petrol and diesel cars. However, the advantage is gradually reducing. The benefit-in-kind percentage for zero-emission cars is 4% in 2026/27 and is scheduled to increase over subsequent tax years. Businesses should therefore compare costs across the expected ownership or lease period, rather than considering the current year's tax position alone.

What is the benefit-in-kind rate for an electric company car in 2026/27?

For a zero-emission company car, the appropriate percentage is 4% for the 2026/27 tax year. The taxable benefit is broadly calculated by multiplying the car's relevant list price by this percentage. The resulting benefit can create an Income Tax liability for the employee and a Class 1A National Insurance liability for the employer.

Is electric company car tax based on the purchase price or list price?

Company car benefit-in-kind calculations are generally based on the vehicle's relevant list price, not the discounted price the business actually pays. This means negotiating a lower purchase price does not necessarily reduce the employee's taxable company car benefit. Relevant accessories and certain other amounts can also affect the figure used, so the correct list-price calculation should be established before comparing vehicles.

Can a business claim 100% capital allowances on an electric car?

A qualifying new and unused zero-emission car can currently qualify for a 100% first-year capital allowance. According to the webinar, the current deadline is 31 March 2027 for companies and 5 April 2027 for unincorporated businesses. A genuinely second-hand electric car does not qualify for this particular first-year allowance, although other capital allowance treatment may be available.

Can a demonstration electric car qualify for the 100% first-year allowance?

Potentially. The webinar explains that HMRC may still regard a car as new where its limited previous mileage relates to testing, delivery or use as a demonstration vehicle. However, a vehicle previously used by another owner for personal or business purposes would be treated differently. Businesses considering a pre-registered or demonstration vehicle should establish its previous use before assuming the first-year allowance applies.

Can an employer pay for charging an electric company car without creating a taxable benefit?

The webinar explains that payments connected with charging a taxable company car can fall within the relevant exemption, including certain home and public charging costs. Employers may reimburse actual qualifying charging costs or use HMRC's advisory electric rates for business mileage. The correct treatment depends on the ownership of the vehicle and how the charging costs are paid or reimbursed.

What are HMRC's advisory electric rates from 1 September 2026?

From 1 September 2026, the webinar states advisory electric rates of 7p per business mile for home charging and 15p per business mile for public charging. Where an employee uses both charging methods, the mileage can be apportioned on a fair and reasonable basis. These rates relate to business mileage in fully electric company cars rather than employees using their own electric vehicles.

What mileage rate applies when an employee uses their own electric car for business?

An employee using their personally owned electric car for qualifying business journeys can fall within the normal Approved Mileage Allowance Payments rules. The webinar states a rate of 55p per mile for the first 10,000 qualifying business miles from April 2026, reducing to 25p per mile thereafter. The employer should retain appropriate business-mileage records when making these payments.

Do electric cars have to pay Vehicle Excise Duty?

Yes. Electric vehicles have been brought within Vehicle Excise Duty rules since April 2025. The amount depends on factors including when the vehicle was first registered. For electric cars first registered on or after 1 April 2025, the webinar discusses a first-year rate followed by the standard VED rate. An expensive car supplement can also apply where the relevant conditions are met.

What is Electric Vehicle Excise Duty, or eVED?

The webinar describes eVED as an additional mileage-based charge planned from April 2028 for battery electric and plug-in hybrid cars. The proposed rates discussed are 3p per mile for battery electric cars and 1.5p per mile for plug-in hybrids. It is intended to operate alongside the existing VED system, rather than replacing the normal VED charge.

How is the new electric vehicle mileage charge expected to work?

Under the system described in the webinar, the registered keeper will estimate annual mileage when dealing with VED. The charge will initially be calculated from that estimate. Actual mileage will subsequently be used to reconcile the position, potentially producing an additional payment or a credit. The webinar also highlights potential complications when a used electric vehicle changes hands during the charging period.

Are plug-in hybrid company cars becoming less tax-efficient?

Some plug-in hybrid company cars face a significant benefit-in-kind change from 2028/29. The webinar explains that qualifying hybrids currently have percentages influenced by their electric-only range. From 2028/29, cars producing between 1g and 50g of CO2 per kilometre are expected to move to an 18% appropriate percentage, increasing to 19% in 2029/30. Existing hybrid arrangements should therefore be reviewed before those changes take effect.

Are electric vans taxed in the same way as electric company cars?

No. Electric vans are subject to different rules because they are not treated as cars for several tax purposes. The webinar highlights potentially different capital allowance, VAT and benefit-in-kind consequences for electric vans. Businesses should therefore establish whether a vehicle is treated as a car or van for tax purposes rather than assuming the electric company-car rules apply.

What should businesses consider before choosing an electric company car?

Businesses should consider the total cost across the period they expect to own or lease the vehicle. That can include purchase or lease costs, capital allowances, benefit-in-kind tax, employer National Insurance, charging arrangements, VAT, VED and the planned mileage-based charge from April 2028. Comparing only today's benefit-in-kind rate can give an incomplete picture of the longer-term cost.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.