Electric Company Cars: The Tax
Benefit, and How Best to Buy One
Electric cars are still one of the most tax-efficient perks you can offer.
Here is the benefit, and the smart way to fund one.
By Jade Stenner, Accountant
If you run a company and are thinking about a car, an electric vehicle is hard to beat on tax. Here is why, and how the way you fund it changes the numbers.
The benefit in kind saving
A company car is a taxable benefit, charged as a percentage of its list price. For a petrol or diesel car that percentage can be 25% to 37%. For a pure electric car it is tiny: just 3% in 2025/26, 4% in 2026/27 and 5% in 2027/28, rising slowly to a 9% cap by 2029/30. In other words, the tax on an electric company car is a fraction of an equivalent petrol model.
There are extra perks too. A company can usually claim 100% first-year capital allowances on a new fully electric car, there is no fuel benefit charge for charging, and workplace charging can be provided tax free.
Lease vs PCP vs contract hire
Contract hire (business lease). You rent the car for a fixed term and hand it back. The monthly cost is simple and predictable, VAT-registered businesses can typically reclaim 50% of the VAT on the rentals (100% if it is used only for business), and the rentals are usually deductible against profits. Good if you like to change cars regularly and keep the asset off your balance sheet.
PCP (personal contract purchase). Lower monthly payments with a large optional final “balloon” payment if you want to keep the car. It is often used personally, and the tax treatment is different, so it can be less clean for a company than contract hire.
Outright purchase or hire purchase. You own the car in the end. This is what unlocks the 100% first-year allowance on a new electric car, which can be very valuable if the company is profitable. The trade-off is that you carry the resale risk.
The right route depends on your cash flow, whether you want to own the car, and your profit position. There is no single best answer.
Rates and rules are correct at the time of writing (2026/27 tax year). We will always run your specific numbers.
Because we know both the motor trade and tax, we can model electric versus petrol, and lease versus buy, for your exact situation.
