Electric Car Through a Limited Company: The Real Cost

The headline is true. The four-year bill is the part they leave out

Buy a brand-new electric car through your limited company and two things are genuinely generous. The company deducts the full purchase price against its profits in the year of purchase, and you are taxed on a company-car benefit-in-kindA non-cash perk from your company, such as a company car, that is taxed as if it were income. For a car the taxable value is a set percentage of the list price, and for electric cars that percentage rises each year. (BIK) of only 4% of the list price for 2026/27. Every accountant and salary-sacrifice provider leads with those two numbers, and they are right to.

This is a company decision, not a sole-trader one. A sole trader gets no benefit-in-kind charge at all, but a private-use restriction on the car's capital allowancesTax relief for assets you buy and keep for the business, such as cars or equipment. The Annual Investment Allowance lets most businesses deduct the full cost of equipment in the year of purchase, but it excludes cars. instead - a different regime with a different sum. If that is you, start with sole trader versus limited company and the allowable expenses guide; this page is the company route.

What the headline hides is the shape of the deal over the years you own the car. The benefit-in-kind bill climbs every April, a used EV never gets the full write-off, and selling can hand the relief back. Here is the whole lifecycle.

The benefit-in-kind bill rises every single year

The company-car benefit is a percentage of the car's list price, and for electric cars that appropriate percentage is set in law to climb: 4% in 2026/27, 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. On a £45,000 car that is a taxable benefit of £1,800 rising to £4,050.

For a higher-rate (40%) director, the income tax on that benefit runs £720, then £900, £1,260 and £1,620 - more than double across a four-year hold. A basic-rate (20%) taxpayer pays half of each. On top of that, the company itself pays employer Class 1A National Insurance at 15% of the benefit, from £270 up to £607.50 a year, though that is a deductible company cost. The reason this matters: nobody quotes the curve, so the car looks cheapest in the one year you see before you sign.

A used electric car does not get the 100% write-off

The 100% first-year allowanceA capital allowance that deducts the full cost of a qualifying asset in the year you buy it. A new, unused zero-emission car qualifies for a 100% first-year allowance; a used one does not. is the reason company EVs look so attractive. Buy a £45,000 new EV and the company deducts the whole £45,000 from its profits in year one, worth £11,250 off the Corporation TaxThe tax a company pays on its profits: for 2026/27, 19% up to £50,000, 25% above £250,000 and an effective 26.5% in between. A director's salary is deducted before it is worked out. A dividend is not. bill at the 25% main rate. But the allowance has one hard condition that quietly gets dropped: the car must be new and unused. It is also time-limited: under section 45D of the Capital Allowances Act 2001, as extended at the Autumn Budget on 26 November 2025, it ends on 31 March 2027 for companies (5 April 2027 for Income Tax).

Buy the same model second-hand and it does not qualify. A used electric car goes into the main capital-allowances pool and attracts a 14% writing-down allowanceA capital allowance that deducts a set percentage of an asset's value each year rather than all at once. Cars in the main pool get 14% a year from April 2026 (18% before). a year instead (it was 18% before April 2026). On a £30,000 used EV that is a £4,200 deduction in year one - about £1,050 of Corporation Tax saved - then a shrinking amount each year after. Same car, very different tax timing. If your company's accounting year straddles 1 April 2026, the rate is blended across the two periods.

Selling the car can claw the relief straight back

Here is the part almost no guide and no forum thread mentions. If the company claimed the 100% allowance and later sells the car, the sale price is taken off the capital-allowances pool. When the car is the company's only asset in that pool, the pool balance is already nil after the full claim, so the entire sale price becomes a balancing chargeTax added back to your profit when you sell an asset for more than its written-down value in the capital-allowances pool. It claws back relief you claimed earlier. and is taxed as profit.

Claim £45,000 up front, sell the car three years later for £18,000, and that £18,000 is added back to profit - roughly £4,500 of Corporation Tax at 25%, due in the year you sell. If the company has other cars or assets in the same pool, the clawback comes through smaller writing-down allowances rather than a single charge, but it still comes. The upfront relief is a timing advantage, not free money (Capital Allowances Act 2001 section 55; HMRC manual CA23210).

Buying through the company versus paying for it yourself

The real comparison is not the car price against your dividends. It is how much pre-tax company profit each route uses up. To buy the £45,000 car personally, a higher-rate director has to draw about £70,039 of dividends, because after 35.75% dividend tax that is what nets £45,000 (assuming your £500 dividend allowance is already used). An additional-rate director, taxed at 39.35%, needs about £74,196.

Those dividends are paid out of profit that has already been through Corporation Tax, so at the 25% main rate the company needs roughly £93,385 and £98,928 of pre-tax profit to fund them. Against that, the company route deducts the car but carries the yearly benefit-in-kind costs above. For a higher-rate director the company purchase wins on the raw sum - but the annual benefit bill and the resale question decide whether it stays ahead. Put your own numbers through the salary vs dividend calculator for the extraction side, and the dividend tax calculator for the personal-purchase cost.

Salary sacrifice for an EV, worth a look for employees, rarely applies to a one-director company, so treat it as a signpost rather than the plan. And if the numbers here push your own income past £100,000, the 60% tax trap is worth reading before you decide how to pay for the car.

The decision that actually matters: what will it be worth in three years?

Strip out the tax and the honest question is the one owner-directors keep returning to: what will this car be worth in three years? Electric resale values have been the volatile part of the sum, and they are the part of the sum that no tax rule can tell you.

That is what tilts many directors towards leasing. A lease carries no resale risk and no balancing charge. The monthly cost is deductible against Corporation Tax where the car has business use, and, unusually, the 15% lease-rental restriction that limits relief on higher-emission cars does not bite a zero-emission car at all. The catch is VAT: where there is any private use, the company can reclaim only 50% of the input Value Added Tax on the lease. Buying keeps the asset and the 100% allowance; leasing trades those for certainty. Neither is the tax-efficient answer on its own.

Three running-cost details to price in

Reclaiming charging costs. From 1 September 2026 the HMRC Advisory Electricity Rate for a company car is 7p a mile for home charging and 15p a mile for public charging. These are reviewed quarterly, so check the live figure before you reimburse.

The Expensive Car Supplement. Since 1 April 2025 electric cars pay the vehicle-tax supplement, but only where the list price is over £50,000 - a higher bar than the £40,000 that applies to petrol and diesel. A £45,000 EV sits below the £50,000 electric threshold and does not pay it; a pricier model above it does.

Pay-per-mile from 2028. The government announced at the Autumn Budget on 26 November 2025, and confirmed after consultation, that from April 2028 battery EVs will pay an Electric Vehicle Excise Duty of 3p a mile, and plug-in hybrids 1.5p a mile, rising each year with inflation. It is not a charge today and the legislation is still in draft, but it is a planned cost on any four-year plan you start now.

The lifecycle checklist

1. New car: bought by 31 March 2027, the company deducts the full price now, but budget for a benefit-in-kind bill that more than doubles by 2029/30.
2. Used car: no 100% allowance, a 14% writing-down allowance instead, so the relief drips out over years.
3. Before you sell: expect a balancing charge if the car was your only pooled asset and you claimed the full allowance.
4. Buy or lease: decide on residual-value risk and charging access, not the tax headline.

Related: the salary vs dividend calculator for how you extract profit, allowable expenses for the sole-trader vehicle route, and sole trader vs limited company if you have not yet incorporated.