How Your Business Can Pay for Your Electric Car in 2025/26

If you're an agency owner, you're always looking for ways to cut unnecessary costs and keep more of your hard-earned money. But did you know your business can buy your next car—completely legally—and save you thousands in tax?

Electric cars are the ultimate tax-efficient business expense right now.

The UK government is rewarding businesses that go electric with some of the best tax breaks we’ve ever seen. But this won’t last forever—some of these perks start disappearing from 2025 onwards.

‍

Upcoming Changes to Electric Vehicle Taxation (2025-2026)

From April 2025, several key tax changes will affect electric vehicles:​

• Vehicle Excise Duty (VED): Currently, EVs are exempt from VED. However, from April 2025, EVs registered on or after April 1, 2025, will incur a first-year rate of £10, rising to the standard rate of £195 from the second year onwards. EVs registered between April 1, 2017, and March 31, 2025, will pay the standard rate of £195 annually. ​
  
  
• Expensive Car Supplement: EVs with a list price exceeding £40,000, registered on or after April 1, 2025, will be subject to an additional £425 per year for five years, on top of the standard VED rate. This means affected EV owners will pay a total of £620 per year between years two and six of ownership. ​
  
  
• Benefit-in-Kind (BIK) Tax: The BIK rate for EVs will rise from the current 2% to 3% starting April 6, 2025, and will gradually increase to 9% by the 2029/30 tax year. ​See table below for reference.

Why Electric Cars Are a No-Brainer for Agency Owners

Right now, electric vehicles (EVs) are the most tax-efficient company perk you can get. The numbers speak for themselves:

What This Means for You

• You pay only 3% BIK tax on an EV, compared to up to 37% on petrol cars.
• Your business can deduct 100% of the car’s cost from its taxable profits—meaning you pay less corporation tax.
• Charging at home or at your office isn’t taxed (unlike petrol or diesel fuel).
• No more congestion charges or ULEZ fees if you drive in city centres.

The bottom line? Letting your business pay for an EV saves you thousands of pounds—both personally and for your company.

How It Works: Letting Your Business Pay for Your Car

The process is surprisingly simple, but the way you structure the purchase matters for tax efficiency.

Step 1: Your Business Buys or Leases the EV

Instead of buying the car personally, your agency purchases or leases the vehicle in its name. This makes it a business asset—and that’s where the tax savings come in.

If your agency buys the car outright, you can claim 100% of the cost as a deduction in the first year.

If your agency leases the car, the lease payments are fully deductible against profits.

Step 2: You Use It Personally—With Minimal Tax Impact

Even though the car is a company asset, you can still use it for personal trips. Because electric cars have a 3% Benefit in Kind (BIK) tax rate, you’ll pay almost nothing in personal tax.

Example:

• If your business provides you with a £50,000 petrol car, you could be paying up to £7,500 per year in tax.
• If your business provides you with a £50,000 electric car, you’ll only pay around £400 per year.

Step 3: Your Business Deducts the Full Cost from Tax

By buying the car through the business, your agency reduces its taxable profit—which means it pays less corporation tax.

If your business earns £100,000 in profit, and you buy a £50,000 EV, your taxable profit drops to £50,000—instantly cutting your tax bill.

✅ Lower taxable profit = less tax paid to HMRC.

But This Won’t Last Forever!

The UK government is phasing out these generous tax breaks over the next few years.

Benefit in Kind (BIK) tax is rising:

• 2% BIK ends in April 2025.
• From 2025 onwards, it will start increasing year by year.
• For 2025/26, BIK is at 3% for EVs.

Full tax deductions may not last:

• Right now, you can write off the full cost of an EV against tax, but this could change after 2026.

The takeaway? If you’re considering an electric car, NOW is the best time to make the switch before these tax benefits start disappearing.

FAQs: Common Questions Agency Owners Ask

Can my business pay for charging costs too?

Yes! If you charge your EV at the office, your business can pay for the electricity. Even better, if you install a charging point, you might qualify for government grants.

What happens if I sell the car later?

If your agency sells the car, you may need to pay some tax on the sale—but the upfront tax savings usually far outweigh this.

Can I do this with a hybrid?

No. Hybrids don’t qualify for the same tax breaks—they’re taxed at a higher BIK rate, and you can’t claim the full cost against corporation tax. If you want the maximum tax savings, go fully electric.

Stop Wasting Money on Petrol Cars

If you’re an agency owner still driving a petrol or diesel car, you’re throwing away money every year.

But these benefits won’t last forever—2025 will be the last year of the best tax breaks.

Thinking about making the switch? 

Talk to us at Sidekick Accounting today to set it up the right way and maximise your savings.

‍