What are the tax rules for electric cars in the UK?

Electric vehicles have been a popular tax-efficient option for employers for a number of years, as electric cars can be provided to employees with little or no taxable benefit in kind for the employee.

While this is no longer the case, as a result of increases to the taxable benefit on electric vehicles, there are still potentially significant tax and national insurance savings for employers to provide electric vehicles to employees, rather than petrol- or diesel-powered cars. 

Private use of an employer vehicle – benefit in kind

The provision of a car by an employer that is available for an employee's private use will usually attract a benefit-in-kind charge. As such, the benefit will be subject to income tax (for the employee) and Class 1A National Insurance Contributions (NICs) for the employer.

The tax and NICs are based on a percentage of the official price of the car plus certain accessories. The percentage is primarily determined by the car's CO2 emissions. The benefit to the employee is then taxed at his or her appropriate personal tax rate.

How is company car tax calculated for electric vehicles?

For the current tax year (2026/27), the applicable percentage for fully electric cars is 4%. For hybrid cars (those with CO2 emissions between 1 and 50 g/km), the percentage depends on the vehicle's electric mileage range, with a maximum of 16%.

However, this is still potentially significantly lower than the taxable benefit on petrol or diesel vehicles, where the percentage applied can be as high as 37%. 

To illustrate this, take a car with an official price of £50,000, and compare the potential annual tax and NIC due for a higher rate taxpayer, depending on the emissions of the vehicle:

Employer paying for charging costs

As electricity is not a fuel, there is currently no employee fuel benefit charge on electric cars, and thus no Class 1A NIC charge for the employer.

In addition to this, there are further tax-free benefits which can be provided to employees in respect of the charging costs of employer-provided cars:

• Allowing employees to use a charging point at work does not result in a taxable benefit.
• The employer can also pay for a charging point to be installed at an employee’s home, provided the electricity is also paid for by the employer, without a benefit-in-kind arising.
• The employer can provide a charge card to allow employees access to public charging points. 

This can provide additional possibilities to provide tax-free benefits to employees, and the tax position is far more favourable compared to where fuel is provided for employee private travel for non-electric cars, which can result in an additional taxable benefit of up to £10,804 for the 2026/27 tax year, depending on the CO2 emissions of the vehicle. 

It is important to note that the rules around charging costs differ where it is the employee's own electric vehicle, and further advice should be sought on the specific circumstances if employers are looking to provide this to employees.

Mileage allowances

Where the employer is not paying the employee for charging costs, they can instead choose to reimburse the employee for business mileage undertaken. 

The current Advisory Electricity Rate for fully electric cars, provided by an employer, is 7p per mile for home charging, and 15p per mile when using public charging points (as at April 2026). This rate is used to reimburse allowable business mileage and is reviewed by HMRC every 3 months. 

Therefore, if an employee provides the electricity from their home and travels 1,000 business miles in their fully electric company car, they can make a mileage claim for £70 without any tax or NIC being due. If they can show that they used public charging points, up to £150 can be reimbursed without tax or NIC. 

Where an employee uses their own electric car for business mileage, they can claim an Authorised Mileage Allowance, and, if the employer pays less than the published rate, the employee may claim Mileage Allowance Relief at 45p per mile for the first 10,000 miles per year and 25p per mile for mileage over 10,000 per year. These rates are currently under review. 

Capital Allowances

For expenditure incurred on new and unused fully electric cars, 100% first-year allowances are available. Leased electric cars do not qualify for this allowance.

First-year allowances also apply to the costs of installing new electric vehicle charging points. 

Value Added Tax

A company cannot reclaim the VAT on the purchase of a car where there is any employee private use, even if it is an electric car.  For leased cars, 50% of the cost can typically be reclaimed, and this also applies to both electric and non-electric cars. 

However, certain electric vehicles may be eligible for a grant, which the seller includes as a discount in the purchase price. 

For further information on the VAT position for car purchases, please contact our VAT team. 

The above is a brief overview of the main tax implications of company electric cars. This is not an exhaustive guide, and it can be a complex area. Any decisions should be supported by professional advice appropriate to your personal circumstances.

Further information

If you have any queries or require our assistance in reviewing the benefits you provide to your employees, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team.