With electric vehicles (EVs) becoming more commonplace on UK roads, many business owners are exploring the benefits of adding them to their company fleets. Aside from their environmental advantages, EVs offer significant tax incentives compared to traditional petrol and diesel vehicles. Understanding how company car tax on electric cars works is key to making informed decisions and ensuring your business remains tax compliant.
In this blog, the experts at Kirkwood Wilson will explore key tax considerations, employer responsibilities, future planning, and how accountants can support your journey into electric company vehicles.
What is Company Car Tax and How Does it Work for Electric Vehicles?
Company car tax applies when a business provides an employee with a vehicle that is also available for personal use. This benefit is taxed through what is known as a Benefit-in-Kind (BiK). The BiK amount is calculated based on the vehicle’s value (P11D value), CO2 emissions, and the fuel type.
Electric vehicles have much lower BiK rates than internal combustion engine cars. For the 2025/26 tax year, the BiK rate for fully electric vehicles is just 3%. Even though this is set to rise gradually in the coming years, it still presents considerable savings for businesses and employees alike.
By choosing EVs for your company fleet, you can significantly reduce your tax liability while also contributing to your business’s sustainability goals.
Employer Responsibilities: Reporting and Payrolling Benefits
Employers are responsible for informing HMRC about any benefits in kind provided to employees, including company cars. One of the most efficient ways to do this is through payroll accounting, a process known as payrolling benefits.
Payrolling allows benefits to be taxed through the monthly payroll, meaning employees pay the correct tax as they go, and employers benefit from reduced end-of-year administration. It’s important to ensure the correct tax codes are used to avoid discrepancies in tax payments.
Whether you’re just starting out with EVs or managing an established fleet, accurate and timely reporting is essential to remain HMRC-compliant.
How Accountants Can Support You with Company Car Tax
Navigating the specifics of company car tax on electric cars can be complex, but professional support can make the process seamless. Here are several ways an accountancy firm, such as our expert team at Kirkwood Wilson, can help:
- Tax Accounting Guidance: An accountant can calculate accurate BiK values for each employee, taking into account the vehicle’s P11D value and the current BiK rate. This ensures both the employer and employee pay the correct tax – this is super important!
- Corporation Tax Services: Businesses may be eligible for capital allowances on electric vehicles, enabling them to offset the cost of the car against taxable profits. This can result in substantial savings on your corporation tax bill.
- Payroll Accounting: Accountants can assist with setting up payrolling systems that incorporate benefits such as company EVs, ensuring you stay compliant and efficient.
- Strategic Planning: With BiK rates scheduled to increase gradually through 2028, accountants can help you plan vehicle purchases and fleet upgrades to maximise tax efficiency.
Working with experienced professionals ensures your business decisions are both financially and operationally sound.
Looking Ahead: Future BiK Rates and Planning Considerations
While the current BiK rate for EVs is just 3%, this rate will increase by 1% each tax year until it reaches 5% in April 2028. Although these rates remain favourable compared to those of petrol and diesel cars, business owners should factor these changes into their long-term planning.
Understanding future BiK rate trends can influence the timing of fleet acquisitions, helping you avoid unexpected tax costs and optimise deductions through corporation tax services. Regular reviews with your accountant can help you stay on top of these changes and adapt your strategy accordingly.
Compliance is Key: What You Need to Remember
To remain compliant with HMRC, business owners must:
- Accurately record vehicle use, especially for personal journeys
- Use correct BiK rates and vehicle values in calculations
- Apply accurate tax codes in payroll
- Report benefits in kind either through payroll or via P11D submissions
For up-to-date information directly from HMRC, you can refer to the official guidance on tax on company cars.
Electric vehicles are not only environmentally friendly but also offer attractive tax advantages for businesses. With the right knowledge and professional support, you can integrate EVs into your company fleet while ensuring full compliance with tax regulations.
Our team at Kirkwood Wilson specialises in tax accounting, corporation tax services, and payroll accounting, providing tailored support to help you manage your tax liabilities effectively.
Contact us today to discuss how we can help you take advantage of the tax benefits of electric company cars and plan for a more efficient and compliant future.
