Buying a zero-emission electric car through your limited company could mean 100% tax relief in the first year.

If you are considering purchasing a company car through a limited company, it’s important to understand the tax implications, especially the significant tax write-offs available for electric vehicles with zero emissions.

The tax treatment will depend on how the car is financed, but in most cases, the vehicle will be classified as a fixed asset, with tax relief available through capital allowances. Unlike other business assets, company cars do not qualify for the Annual Investment Allowance (AIA). Instead, they fall into specific capital allowance categories based on their CO₂ emissions and when they were purchased.

If you purchase a new and unused fully electric or zero-emission car, it qualifies for a 100% First Year Allowance (FYA). This means:

• You can deduct the full cost of the car from your company’s taxable profits in the year of purchase
• The car must be brand new and registered as zero-emission to qualify.

If the car does not meet the criteria for 100% FYA, it will fall into one of the following categories:

• 18% Main Rate Allowance: Applies to cars with lower CO₂ emissions (but not zero). 18% of the car’s cost can be written off each year on a reducing balance basis
• 6% Special Rate Allowance: Applies to cars with higher CO₂ emissions or certain second-hand vehicles. Only 6% of the cost is deductible each year.

It’s important to bear in mind that, as with any company car if there is personal use, then there will be benefits in kind (BIKs) to report and pay. The following BIK rates will apply for electric cars with zero emissions: 

• 2% of the list price for 2024/25
• 3% of the list price for 2025/26
• 4% of the list price for 2026/27
• 5% of the list price for 2027/28.

However these rates are significantly lower than the BIK for petrol and diesel vehicles, which can be up to 37%, depending on emissions.

Finally, it is worth noting that, from 1 April 2025, all electric, zero and low emission vehicles are now subject to the Vehicle Excise Duty (VED) or car tax. For these vehicles, if they are registered on or after this date, the vehicle tax will be £10 for the first year, moving to the standard rate of £195 from the second year.

If you would like to find out more about the tax benefits of buying an electric car through your limited company, or any other tax or accounting questions, please get in touch.

Internet link: GOV.UK