Tax rates are going up: Is it still worth owning a company electric car?
If you’re a UK director wondering whether to buy your next electric vehicle (EV) through your limited company or you already own one, the tax rules are shifting over the next few years.
The Scenario: Director Buying a used electrical vehicle (EV)
You’re a company director looking at a used pure EV (not a hybrid) such as:
Tesla Model Y (typical list when new: £45k–£55k)
BMW iX3 (typical list when new: £55k–£60k+)
Porsche Taycan Turismo (often £80k+ when new)
Even if you buy the car used, your Benefit‑in‑Kind (BIK) is based on the original list price when new, not what you pay today.
That matters: the higher the list price, the higher the BIK charge over time.
Key Tax Concept: Benefit‑in‑Kind (BIK) on EVs
For company cars, you’re taxed on a BIK value:
List price when new × EV BIK % × your income tax rate
For fully electric cars, the BIK rate has been extremely low but is on a upward path:
2% up to 2024/25
3% in 2025/26
4% in 2026/27
Then rising each year to a capped 9% by 2029/30
Even at 9%, this is still modest compared with taking a large dividend to buy at 33.75–39.35% just to buy the car personally.
Example: £50,000 Used EV – Basic‑Rate vs Higher‑Rate Taxpayer
Let’s assume:
Original list price when new: £50,000
You hold the car for several years as the BIK rate rises.
Basic‑rate taxpayer (20%)?
Illustrative BIK over a few years:
Year at 4% BIK:
BIK value = £50,000 × 4% = £2,000
Year at 7% BIK:
BIK value = £50,000 × 7% = £3,500
Tax at 20% = £700
Over a 3–4 year holding period, you might see a total BIK tax bill in the region of £2,500 personally (e.g. £400 + £500 + £700 + £900 as the rate steps up).
Higher‑rate taxpayer (40%)?
Same £50,000 list price car, but at 40% income tax:
Year at 4% BIK:
BIK = £2,000 → tax = £800
Year at 7% BIK:
BIK = £3,500 → tax = £1,400
Over 4 years, it’s realistic to be in the £5,000–£6,000 total BIK range.
Cost to the Company: Class 1A NIC
On top of your personal tax, the company pays Class 1A NIC on the BIK (at around 13.8–15% depending on the tax year and assumptions).
Using the same example:
BIK £2,000 at 4% → Class 1A NIC ~£300 (company cost, corporation‑tax deductible)
Scaled over several years, that might be £2,000–£3,000 total Class 1A NIC for a typical 3–4 year holding period.
Company Purchase vs Personal Purchase (Using Dividends)
Now compare that to buying the car personally.
Buying personally with dividends
If the car costs £40,000–£50,000 used and you pay for it personally from dividends:
To have £40,000 in your pocket after a 35% effective dividend tax hit, your company may need to earn roughly £61,500–£70,000 before dividends.
In other words, a large chunk of company profit is lost to dividend tax just to fund the purchase.
Buying through the company
If the company buys the EV:
The company pays the purchase price (e.g. £40,000–£50,000).
It gets tax relief over time via capital allowances:
New EV: 100% first‑year allowance – full deduction in year 1.
Used EV: goes into the main pool – tax relief spread over time (18% before April 2026, 14% thereafter).
You personally pay BIK tax of perhaps:
£2,500 over 3–4 years (basic‑rate), or
£5,000–£6,000 (higher‑rate), in our £50k‑list example.
The company also pays Class 1A NIC of maybe £2,000–£3,000 over the period.
For many directors, particularly looking at higher‑value EVs like a Taycan or iX3, the combined BIK + Class 1A NIC cost is still significantly lower than the dividend tax that would be suffered on withdrawing the full purchase price personally.
Charging, Running Costs and Admin
Buying the EV through your company brings further advantages:
Electricity for charging a company EV at home can be reimbursed by the company without creating a separate taxable benefit, provided it’s based on actual cost or a reasonable rate and records are sensible.
Home charge‑point: installation and repairs for a company car are not treated as a taxable benefit, so there’s no BIK for you; they’re a business expense.
Insurance, servicing, tyres, repairs: paid by the company and deductible against profits.
Record‑keeping: you must keep good records of business vs personal mileage (e.g. diary plus mileage‑tracking app) in case of HMRC enquiry.
If the car is genuinely a strict pool car (used only for business, minimal private use, and meeting HMRC conditions), BIK can be eliminated entirely – making company ownership clearly the best option.
What If You Keep the Car Personally?
The alternative is to keep/own the car personally and:
Have the company pay you mileage at HMRC’s Approved Mileage Allowance Payments (AMAP) rates – for example, 55p/25p per mile in 2026/27 (first 10,000 miles vs above that).
These payments are tax‑free to you and tax‑deductible for the company.
This can be more efficient and far simpler administratively if:
Your business mileage is relatively modest, and
You don’t want the compliance burden of a company car and BIK calculations.
Capital Allowances, Director’s Loan and Depreciation
A few extra points to factor into your decision:
New vs used EV for capital allowances
New EV: 100% first‑year allowance (full deduction in year 1).
Used EV: main pool (18% before April 2026, 14% thereafter) – relief spread over several years.
Director’s loan: if you sell your old car and introduce the proceeds as a director’s loan, that only affects how the purchase is funded (and any interest you might charge), not the availability of capital allowances.
Depreciation vs tax:
For accounts, you depreciate the EV over its useful life (e.g. 4–5 years).
For tax, you follow capital allowances – these often differ from accounting depreciation.
Sale proceeds: when the company eventually sells the EV, the proceeds belong to the company and are taxable income for corporation tax purposes – so include this in your total cost‑of‑ownership calculations.
Residual values: EV prices have been volatile; used EVs can move sharply in value. A 2–4 year‑old car with a 3–4 year holding period is often a sensible compromise to manage depreciation risk.
Upcoming Road‑Tax & BIK Changes You Need to Know
There are some important changes coming that affect the longer‑term economics:
BIK rates for pure EVs
Rising by 1% a year to around 5% by 2027/28.
Then rising by 2% a year to reach 7% in 2028/29 and 9% in 2029/30.
Even at 9%, the BIK on a £50k car is £4,500, which for a 40% taxpayer is £1,800 of income tax – still often far less than the dividend tax on the full purchase cost.
Plug‑in hybrids (PHEVs) from 2028
Current banded regime (1–50g/km CO₂) is being abolished from 2028/29.
All such cars will move to a flat 18% appropriate percentage, rising to 19% in 2029/30.
That’s a big jump in BIK for many hybrids that currently enjoy EV‑like rates, making pure EVs relatively more attractive from a BIK perspective.
Vehicle Excise Duty (VED) and eVED
From April 2025, pure EVs lose their VED exemption:
New EVs pay £10 in year 1, then the standard VED rate (around £195) from year 2 onwards.
From April 2028, a new electric vehicle excise duty (eVED) – a per‑mile road tax – will be introduced on top of standard VED:
Indicative rates: 3p per mile for EVs, 1.5p per mile for hybrids, uprated annually with CPI.
Example: an EV doing 5,000 miles a year would pay around £150 in eVED, plus £195 standard VED (and any expensive‑car supplement, where applicable).
The Bottom Line
Pure EVs remain tax‑efficient company cars, even with BIK rates rising.
For directors, especially higher‑rate taxpayers and those eyeing higher‑value EVs, company ownership usually wins over personal purchase funded by dividends – once you factor in:
BIK,
Class 1A NIC,
Capital allowances, and
The ability to expense running costs.
If your mileage is low and you prefer simplicity, a personally‑owned car plus mileage can still be an excellent option.
