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If you are thinking about purchasing a company car, it may be worth considering buying an electric/zero emissions car. Compared to a petrol/diesel car, you will get significant tax benefits if you get an electric car. 

  • An electric car will result in a lower personal tax bill for yourself, as the taxable benefit on an electric car is much lower.
  • A zero/low emissions car will also be eligible for first year capital allowances, currently 100%, which will provide tax relief through the reduction in corporation tax.
  • Corporation tax can also be reduced through leasing an electric vehicle, as the cost of this will lower profits – If leasing is your preference.
  • Electric cars are also exempt from ULEZ/congestion charges, which may save you money if you are frequently travelling in the London area. If ULEZ is successful, expect that to be rolled out across many cities and towns in the country!

Taxable Benefit – for tax years 2023/24 & 2024/25

Zero Emissions – The taxable benefit would be only 2% of the list price of the car – making it a very cheap company benefit.

Low Emissions (emissions ranging from 1-50g/km) – The taxable benefit on the list price of the car would be between 2 and 14%, depending on the electric mileage range of the car.

Capital Allowances

If the company were to buy the car for cash/HP, then it can claim the following capital allowances:

  • 100% on a NEW zero emissions or electric car; or
  • 18% (reducing basis) on a new or used low emissions car or a used electric car.

If it were to lease the car, this would result in a reduction of profits by the amount of lease payments made in the year and so less corporation tax to pay. 

VAT – Reclaimable?

If you purchased the car outright through the company, you would not be able to reclaim any of the VAT as it is not a commercial vehicle. 

However, if you leased the car then you would be able to reclaim up to 50% of the VAT on the lease costs.

Verity Smith MAAT

Trainee Accountant