If you drive an electric vehicle, the tax rules are no longer as simple as they once were. Since April 2025, EV owners have had to adjust to the end of free road tax, updated benefit-in-kind rates for company car drivers, and a broader set of tax considerations for directors and limited company owners.
That means the true cost of running an electric car now depends on more than just charging costs and upfront price. Road tax, company car tax, capital allowances, and future changes all play a part in the overall picture.
This guide breaks down what electric car tax looks like in 2026 and beyond, so you can understand the rules clearly, plan ahead, and avoid any unexpected costs.
The End of Free Electric Car Road Tax
For years, owning an electric vehicle in the UK meant paying nothing in Vehicle Excise Duty (VED), commonly known as road tax. That changed on 1 April 2025, when the government extended VED to electric cars for the first time.
The decision reflects two things: the rapid growth of EVs on UK roads and the Treasury’s need to replace revenue previously generated by fuel duty. There are now over 1.7 million electric vehicles registered in the UK. The government can no longer justify exempting them from one of the country’s most established motoring taxes.
The good news is that electric car road tax rates remain significantly lower than those for high-emission petrol and diesel vehicles. Understanding the rates that apply to your car is the first step in managing your motoring costs.
What Are the New VED Rates for Electric Cars?
From 1 April 2025, electric cars became subject to vehicle excise duty, so EV owners now need to factor road tax into their running costs. The amount you pay depends on when the car was first registered and whether it falls within the expensive car threshold.
The amount you pay depends on when your vehicle was first registered:
| Registration Date | Year 1 VED | Year 2+ VED |
| Registered before 1 April 2017 | £20/year | £20/year |
| Registered 1 April 2017 – 31 March 2025 | £200/year | £200/year |
| Registered from 1 April 2025 | £10 | £200/year |
| Registered from 1 April 2025 (list price over £50,000) | £10 | £640/year (inc. Expensive Car Supplement) |
You can check the latest rates in HMRC’s official guidance on vehicle tax for electric and low-emission vehicles.
The expensive car supplement catches a lot of EV buyers off guard. If your car had a list price above £50,000, you would pay an additional £440 per year on top of the standard rate for the first five years. That brings the total annual bill to £640. The threshold for electric cars was increased from £40,000 to £50,000 in November 2025, which means more EV models are now exempt from this extra charge than before.
Electric Car Tax for Company Car Drivers
If you use an electric company car for anything beyond business travel, such as the school run, shopping trips, or weekend driving, you may need to pay Benefit in Kind tax. This is the tax charged on perks or benefits provided by your employer, and a company car is one of the most common examples. For electric vehicles, the good news is that the rate remains much lower than it is for most petrol or diesel cars.
The amount you pay is based on three main figures. These are the car’s list price, also known as its P11D value; the benefit-in-kind percentage set by HMRC according to the vehicle’s CO₂ emissions; and your personal income tax band. Because electric cars produce zero tailpipe emissions, they attract a much lower BiK rate, which is what makes them so tax-efficient as company cars.
The formula is fairly simple: P11D value x BiK rate x income tax rate = annual tax payable. Once you understand those three figures, it becomes much easier to estimate the real cost of using an electric company car for personal use.
BiK Rates for Electric Vehicles: 2025 to 2030
Electric cars attract a substantially lower BiK rate than petrol or diesel vehicles. HMRC sets petrol car rates as high as 37%, while EVs remain far more tax-efficient even as rates rise.
| Tax Year | EV BiK Rate | Annual Tax (20% taxpayer, £40k car) | Annual Tax (40% taxpayer, £40k car) |
| 2025/26 | 3% | £240 | £480 |
| 2026/27 | 4% | £320 | £640 |
| 2027/28 | 5% | £400 | £800 |
| 2028/29 | 7% | £560 | £1,120 |
| 2029/30 | 9% | £720 | £1,440 |
To put those numbers in context, a basic rate (20%) taxpayer driving a £40,000 electric company car in 2025/26 pays just £240 per year in BiK tax. That is £20 a month. A higher-rate (40%) taxpayer on the same car pays £480 per year.
A similarly valued petrol company car with a 25% BiK rate would cost a 40% taxpayer £4,000 per year. The electric vehicle advantage is significant, even accounting for the rising trajectory of EV BiK rates.
According to HMRC’s company car tax guidance, BiK is reported annually via the P11D form. Your employer is responsible for submitting this. The tax itself is collected through your PAYE tax code.
One further point worth noting: HMRC does not classify electricity as a fuel. This means charging an electric car through your employer does not trigger a fuel benefit charge. With petrol and diesel company cars, personal fuel provided by the employer generates a separate, often costly, tax liability. Electric car drivers avoid this entirely.
Buying an Electric Car Through Your Limited Company
For limited company directors, purchasing an electric car through the company remains one of the most tax-efficient decisions you can make. Our full guide on the benefits of buying a company car through a limited company covers the topic in detail. Here are the key tax points to understand.
Capital Allowances for Electric Vehicles
Zero-emission electric cars purchased by a limited company qualify for the 100% First Year Allowance (FYA). This allows you to deduct the full cost of the vehicle from your taxable profits in the year of purchase, reducing your corporation tax bill immediately and in full.
For example, a £40,000 electric car purchased through a limited company generates a £40,000 deduction. At the current corporation tax rate of 25%, that saves £10,000 in corporation tax in the first year alone.
This compares very favourably with petrol or diesel vehicles, which typically fall into the main rate capital allowance pool and are written down at just 18% per year. You would wait many years to recover the same level of relief on a petrol car as you receive immediately on an EV.
Leasing an Electric Car Through Your Company
Leasing is another popular route for directors. If you are weighing up the options, our guide on whether to lease or buy a company car through your limited company walks through the pros and cons of each approach.
When you lease an EV through your company, you can deduct 100% of the lease rental from your taxable profits. For zero-emission vehicles, the full deduction applies. HMRC also allows you to reclaim 50% of the VAT on the lease rental, based on the assumption that some personal use occurs. If the vehicle is used exclusively for business, a greater proportion of VAT may be reclaimable.
Is It Still Worth Going Electric Through a Limited Company?
Yes, for most directors the answer remains yes. The combination of a 3% BiK rate in 2025/26, the 100% First Year Allowance, and no fuel benefit charge for electricity makes the electric company car one of the most tax-efficient ways to extract value from a limited company.
Even as BiK rates rise to 9% by 2029/30, the gap between EVs and petrol vehicles remains wide. A petrol car in the same price bracket could attract a BiK rate above 25%, meaning the EV advantage is substantial. For directors planning a company car purchase on a three to four-year contract, running the numbers across the full period is essential. The picture remains compelling for electric.
Keeping accurate records of vehicle costs, private use, and VAT is important. Our bookkeeping services can help you stay organised and ensure you claim every allowance you are entitled to.
Salary Sacrifice and Electric Cars
Salary sacrifice is worth knowing about, particularly for employees rather than directors. Under a salary sacrifice arrangement, you give up a portion of your gross salary in exchange for the use of an electric car through your employer. This reduces your taxable income, lowering both income tax and National Insurance contributions.
Because EV BiK rates are flat regardless of the car’s list price, the tax cost is predictable. A £25,000 EV and a £60,000 EV attract the same BiK percentage. This makes salary sacrifice a cost-effective benefit for employees at a range of income levels and a useful tool for employers looking to attract and retain staff.
What Is Coming Next: eVED From 2028
There is one more change on the horizon worth factoring into longer-term plans. The government has confirmed a new electric vehicle excise duty, known as eVED, which will take effect from April 2028. Under this system, battery electric vehicle owners will pay a per-mile charge of 3p per mile in addition to the flat-rate VED they already pay.
At 8,000 miles per year, the average EV driver would pay approximately £240 under eVED. The government has confirmed that no tracking devices will be required; mileage is expected to be verified at MOT test centres. This is still several years away, but it reinforces the direction of travel: EV drivers will gradually pay more, in line with what drivers of conventional vehicles have always paid.
Get the Right Advice for Your Situation
Electric car tax is changing fast, and the rules interact with your personal tax position in ways that are not always straightforward. Whether you are an employee with a company car, a director thinking about an EV purchase, or a sole trader weighing up their options, getting the numbers right matters.
Our personal tax return service can help you report benefits in kind correctly and make sure your tax code reflects your actual position.
Ready to get started? Get a free quote from eAccounts or book a free consultation with our team today. We work with over 1,000 businesses across the UK and would be happy to help you navigate the evolving world of electric car tax.
FAQs
Do electric cars pay road tax?
Yes. From 1 April 2025, all electric vehicles are required to pay vehicle excise duty. The rate depends on when the car was registered. New EVs registered from April 2025 pay £10 in their first year, rising to the £200 standard rate from year two.
How much is electric car tax for company car drivers in 2026?
The benefit in kind rate for zero-emission electric company cars is 3% in 2025/26. On a £40,000 car, that creates a taxable benefit of £1,200. A basic-rate taxpayer pays £240 in income tax per year; a higher-rate taxpayer pays £480. Rates rise annually, reaching 9% by 2029/30.
Can I buy an electric car through my limited company and claim tax relief?
Yes. A new zero-emission electric car purchased by a limited company qualifies for the 100% First Year Allowance. You can deduct the full purchase price from your taxable profits in the year of purchase, significantly reducing your corporation tax bill compared to buying a petrol or diesel vehicle.
Is there a luxury tax on electric cars?
Yes, if your EV had a list price above £50,000 when new. The Expensive Car Supplement adds £440 per year to your VED bill for the first five years of ownership, bringing the total to £640 annually. The £50,000 threshold applies specifically to electric vehicles and was raised from £40,000 in November 2025.
Do I pay tax on electric car charging through work?
No. HMRC does not classify electricity as a fuel, so there is no fuel benefit charge for electric company cars, even when you charge using your employer’s facilities. This is one of the most valuable tax advantages of the electric company car compared to a petrol or diesel equivalent.
