A UK company buying a new zero-emission car can deduct the full purchase price from its taxable profits in the year it is first used, and the corporation tax treatment of electric cars stacks several other reliefs on top: full deductibility of lease payments, a low benefit-in-kind charge for employees, a 100% write-off on charging equipment, and tax-free mileage reimbursement within HMRC’s advisory rates. The headline first year allowance runs until 31 March 2027.
The 100% First Year Allowance on New Electric Cars
Section 45D of the Capital Allowances Act 2001 lets a company claim a 100% first year allowance on the full cost of a new zero-emission car. The vehicle must be unused, not second-hand, and produce 0g/km of CO2.1legislation.gov.uk. Capital Allowances Act 2001 – Section 45D Only fully battery-electric cars qualify. Plug-in hybrids with any tailpipe emissions do not.
The original expiry was 31 March 2025, but the government extended the relief by two years. Qualifying expenditure incurred on or before 31 March 2027 for corporation tax purposes still attracts the full 100% deduction.2GOV.UK. Capital Allowances Extension of First Year Allowances for Zero Emission Cars and Chargepoints
The entire cost is deducted in the accounting period the car is first used for business; nothing carries forward. For a company on the 25% main rate, a £50,000 electric car generates a £12,500 corporation tax saving in that single period. On a £40,000 car the same relief is worth £10,000; at the 19% small profits rate the saving on that car falls to £7,600. These are front-loaded cash savings rather than the slow drip of writing-down allowances spread over many years.
Used Electric Cars Go Into the Main Pool
The 100% allowance only applies to new cars. A second-hand electric vehicle goes into the main rate pool and attracts writing-down allowances at 18% per year on a reducing-balance basis.3GOV.UK. Claim Capital Allowances Business Cars That is a much slower cost recovery, though it still beats high-emission cars, which fall into the special rate pool at 6%.
A used electric car costing £30,000 gives a writing-down allowance of £5,400 in year one. At the 25% rate that is £1,350 of corporation tax saved, compared with £7,500 if the same car had been new and eligible for the first year allowance. Running the numbers before choosing between new and used is worth the effort.
Leasing an Electric Car
When a company leases rather than buys, monthly payments are deducted as a business expense against trading profits. For most cars, HMRC imposes a 15% lease rental restriction on cars with CO2 emissions above 50g/km.4GOV.UK. Business Income Manual BIM47725 – Specific Deductions Travel and Subsistence Cars Restriction of Hiring Costs
Zero-emission cars sit well below that threshold, so the restriction does not apply. The company deducts 100% of the lease rentals, finance element included, against taxable profits. Make sure the lease agreement clearly records the vehicle’s CO2 emissions as 0g/km; if HMRC queries the deduction, that is what they will check first.
Charging Equipment Also Gets 100%
Section 45EA of the Capital Allowances Act 2001 gives a 100% first year allowance on plant and machinery installed solely for charging electric vehicles.5legislation.gov.uk. Capital Allowances Act 2001 – Section 45EA This covers charging units, dedicated cabling, and associated electrical work. The equipment must be new and unused. The relief runs until 31 March 2027 for companies within the charge to corporation tax.2GOV.UK. Capital Allowances Extension of First Year Allowances for Zero Emission Cars and Chargepoints
The definition of “electric vehicle” under Section 45EA is broader than for the car allowance itself. It includes any road vehicle that can be propelled by electrical power, which covers plug-in hybrids and electric vans as well as fully battery-electric cars.5legislation.gov.uk. Capital Allowances Act 2001 – Section 45EA Keep itemised invoices that separate hardware from installation labour, and store them with your wider capital allowances records.
Company Car Benefit and Employer National Insurance
When a company provides an electric car as a company car, the benefit-in-kind percentage is the lowest of any vehicle type. For 2025-26 the rate is 3% of the car’s list price, rising to 4% in 2026-27 and 5% in 2027-28.6GOV.UK. Work Out the Appropriate Percentage for Company Car Benefits 480 Appendix 2 A typical petrol car sits at 25-37%.
The corporation tax angle is employer Class 1A National Insurance. The company pays Class 1A NI on the taxable benefit, calculated as list price multiplied by the BiK percentage, multiplied by the employer NI rate of 15%. On a £45,000 electric car in 2026-27, the BiK value is £1,800 (4%) and the employer NI cost is £270 for the year. The same car with a petrol engine at a 30% BiK rate would generate a £13,500 taxable benefit and £2,025 of employer NI. That £1,755 annual saving is itself a deductible business cost and recurs every year the employee has the car.
Reimbursing Business Mileage
Where employees drive electric company cars for business and the company reimburses their electricity costs, HMRC publishes advisory fuel rates that set the tax-free reimbursement level. From 1 June 2026 the rates for fully electric cars are 7 pence per mile for home charging and 15 pence per mile for public charging.7GOV.UK. Advisory Fuel Rates
Reimbursements at or below these rates are deductible business expenses and create no additional tax liability for the employee. HMRC reviews the rates quarterly, so check the current figures before setting policy. Paying above the advisory rate is allowed, but the excess becomes a taxable benefit.
Claiming on the Company Tax Return
First year allowances for zero-emission cars and charging equipment are reported on the CT600. The main entry point is Box 760, where you record the total expenditure on which first year allowances are claimed, including zero-emission cars and electric vehicle charging points.8GOV.UK. Completing Your Company Tax Return Supporting computations must show how the allowances were calculated.
Writing-down allowances on used electric cars in the main rate pool feed into the separate capital allowances boxes (688 to 730) that form part of the trading profit calculation. The return is filed through HMRC’s online portal or approved commercial software.
Records to Keep
For new car claims, retain the purchase invoice showing the vehicle is new and the V5C registration document confirming 0g/km emissions. For leased vehicles, keep the lease agreement with the emissions figure clearly stated. For charging infrastructure, hold itemised receipts that separate hardware from installation labour.
Companies must keep these records for at least six years from the end of the financial year they relate to. The period extends further if the asset is expected to last longer than six years, or if HMRC opens a compliance check. Failing to maintain adequate records can lead to a penalty of up to £3,000 or disqualification as a company director.9GOV.UK. Running a Limited Company Your Responsibilities
The 31 March 2027 Deadline
The 100% first year allowance for zero-emission cars and for charging equipment currently expires on 31 March 2027. Companies planning fleet transitions should ensure vehicles are purchased and brought into use before that date. If the allowance is not extended again, new electric cars purchased afterward would fall into the main rate pool at 18%, turning a one-year tax deduction into a multi-year one.