Are EVs still tax-efficient for limited company contractors in 2026/27?

Most of the traditional tax advantages available to limited company contractors have been reduced over time. Even so, there are still some savings to be had if you are considering an electric car.

From Benefit in Kind (BIK) charges to capital allowances, there are areas worth understanding before deciding whether to run an electric vehicle (EV) through your business or buy one personally.

If you are weighing this up as a contractor, it helps to look at the numbers. See our guides on capital allowances, calculating the real cost of a company car, and company car expenses vs using your own vehicle.

Benefit in Kind (company car tax)

One of the main incentives for contractors to look at EVs is the relatively low company car tax charge. If your limited company provides you with an electric car for both business and personal use, you are taxed on a percentage of the vehicle’s list price.

• The BIK rate for zero-emission cars is 4% of the list price in 2026/27.
• It rose from 3% in 2025/26 and will increase to 5% in 2027/28.

This remains far below the rates charged on petrol or diesel company cars, which can be as high as 37%. See GOV.UK guidance.

Capital allowances

If your company buys a new, unused, fully electric car, you can claim 100% first-year allowances (FYA) on the cost. This allows you to deduct the full cost from company profits in the year of purchase, reducing your Corporation Tax bill.

The government has extended this relief so that qualifying expenditure is available until 31st March 2027 for companies and until 5th April 2027 for unincorporated businesses.

Used EVs do not qualify for the 100% First-Year Allowance (FYA) but can be written down at the main pool rate of 14% (reduced from 18% for the 2026/27 tax year). Leased vehicles generally do not qualify for capital allowances; instead, relief is claimed on lease rentals.

For background on how capital allowances work, see our guide to capital allowances tax relief, and the official GOV.UK page for vehicles.

Leasing through your company

Many contractors prefer to lease rather than purchase outright. If you lease an electric car through your limited company, the monthly lease costs are usually deductible against Corporation Tax, provided there is some business use.

The low BIK rate still applies, so the director’s personal tax charge remains manageable. VAT treatment depends on the level of private use.

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Mileage claims and electricity costs

Contractors who use their own car for business journeys can claim mileage from the company at HMRC’s Approved Mileage Allowance Payment (AMAP) rates.

These remain at 45p per mile for the first 10,000 miles, 25p thereafter, regardless of whether the vehicle is petrol, diesel, hybrid, or electric.

Where a company car is provided, HMRC sets an Advisory Electricity Rate (AER) for reimbursing electricity used for business mileage.

From 1st March 2026, the AER is 7p per mile for home charging and 15p per mile for public charging. These rates are reviewed quarterly. See GOV.UK for current advisory rates.

VAT and charging points

• If your company installs a charging point at its premises, the cost is usually deductible against Corporation Tax.
• A government EV chargepoint grant is available to renters and flat owners, covering up to 75% of the installation cost, with a cap of £500.
• Input VAT can normally be reclaimed on charging costs for a company car, provided the electricity is used for business travel.

Congestion charge and road tax

• London Congestion Charge: The 100% Cleaner Vehicle Discount ended on 25 December 2025. From 2 January 2026, the daily Congestion Charge is £18, but electric cars registered for Auto Pay receive a 25% discount (reducing the fee to £13.50).
• Vehicle Excise Duty (VED): from April 2025, EVs are no longer exempt. New zero-emission cars pay a £10 first-year rate, then move to a standard annual rate of £200 (up from £195 in 2025/26).

Buy through the company or personally?

For contractors, the decision depends on how you intend to use the car and the financial position of your company.

• Company purchase — more attractive if you want to use capital allowances, benefit from low BIK rates, and keep costs inside the business.
• Personal purchase — may be better if you mainly drive privately, or if your company has little profit to offset. You can still claim mileage from the company at AMAP rates for business travel.

To run the numbers, try our guide to calculating the cost of a company car, and read company car expenses vs using your own vehicle.

Summary

The generous grants of the past are gone, and EVs are now taxed more like conventional cars in some areas. Even so, contractors can still benefit from:

• Very low company car tax compared with petrol and diesel vehicles.
• 100% first-year allowances on new EV purchases until 2026.
• Corporation Tax relief on leasing costs and charging infrastructure.
• Ability to claim mileage or electricity reimbursement at HMRC’s approved rates.

Given the pace of change in both tax policy and EV technology, contractors should always check the latest rules before making a purchase.

For official guidance, see GOV.UK on company cars, advisory fuel and electricity rates, and capital allowances for vehicles.