Electric and company cars: the tax position for directors
A company car used to be a tax trap — a benefit so heavily taxed that most directors were better off buying privately. Electric cars have turned that on its head. For 2026/27, an electric company car is one of the few genuinely tax-efficient ways to take value out of a company, and the gap against a petrol equivalent is striking.
How company car tax works
If a company provides a car that is available for an individual's private use, that is a benefit in kind. The person pays income tax on a set percentage of the car's list price, and the percentage is driven by the car's CO2 emissions — the dirtier the car, the higher the charge. On top of that, the company pays Class 1A National Insurance (at 15% in 2026/27) on the same benefit figure. So a company car has a cost to both the director personally and the business.
Why electric cars are so cheap to run through a company
This is where it gets interesting. A fully electric car is taxed on just 4% of its list price in 2026/27. The rate rises gently — 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30 — but even at the end of that run it is a fraction of what a conventional car costs. Most petrol and diesel cars sit in the 26% to 37% band.
To put numbers on it, a 40% taxpayer with a £40,000 electric car is taxed on 4% of £40,000, which is £1,600, costing around £640 a year in income tax on the benefit. The same driver in a typical petrol car of the same price could pay several times that. The company's Class 1A NI follows the same low figure for the electric car.
The 100% first-year allowance
There is a second advantage for companies. A new fully electric car bought by a business currently qualifies for a 100% first-year allowance, so the whole cost can be set against profit in the year of purchase. Petrol and diesel cars get only slow writing-down allowances, as we explain in our guide to capital allowances. Between the low benefit-in-kind charge and the full upfront deduction, an electric company car stacks up in a way few other perks do.
How it compares with just paying yourself
For most owner-managers, the usual way to take value from a company is a mix of salary and dividends, which we cover in our guide to dividends versus salary. An electric company car is worth weighing against that: it is taxed far more lightly than taking the same money as dividends and buying a car personally. A petrol company car rarely beats paying yourself; an electric one often does.
Get the details right
The headline is attractive, but the detail matters — how charging is paid for, the treatment of business and private mileage, and keeping the car genuinely a company asset. It is also worth remembering that benefit-in-kind rates are set years ahead but can be changed at a Budget, so the long-term picture is not guaranteed.
If you are thinking about a company car, it is one of the few areas where the tax tail can reasonably wag the dog — an electric car can be the right answer on the numbers alone. We help directors across Garforth, Leeds and West Yorkshire work out whether it stacks up for them, and set it up so the saving is not undone by a paperwork slip. Run your figures before you order anything.
This is general information, not advice for your circumstances. If you'd like it applied to your situation, get in touch — the first chat is free.
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