Company Car Tax Benefits UK 2025: Why Everyone's Driving Electric

You've probably noticed more Porsche Panameras on the road lately. There's a reason for that, and it's not just because they look good. If you're a limited company director or employee, getting an electric car through your company isn't just smart tax planning. It's basically free money compared to buying one yourself. With the 2025/26 tax year rates making electric cars incredibly tax-efficient, there's never been a better time to make the switch.

Why Electric Cars Through Your Limited Company Make Sense

When your limited company buys or leases an electric car, you're tapping into one of the biggest tax advantages available to UK businesses right now. The savings come from three places: lower Benefit in Kind tax for you, 100% capital allowances for your company, and much lower running costs.

For 2025/26, electric cars attract just 3% Benefit in Kind tax. Compare that to a petrol car emitting 100g/km of CO2, which hits 26% BIK. On a £50,000 car, that's the difference between paying tax on £1,500 versus £13,000. As a higher rate taxpayer, that's £4,420 less tax per year. Every year, for as long as you have the car.

Your company also gets 100% First Year Allowance on electric cars until March 2026. That means if your company buys a £60,000 electric car, you can write off the entire cost against Corporation Tax in year one. For a company paying 25% Corporation Tax, that's an immediate £15,000 tax saving. You're effectively getting the car at 75% of the list price.

How Benefit in Kind Tax Works

Benefit in Kind is the tax you pay when your company gives you something valuable, like a car. HMRC calculates it by taking the car's P11D value (basically the list price when new) and multiplying it by a percentage based on emissions.

Here's how the Benefit in Kind rates break down for the 2025/26 tax year:

• Fully electric vehicles: 3% BIK rate for 2025/26 (was 2% in 2024/25, but still incredibly low)
• Plug-in hybrids with 130+ miles electric range: 3% (2025/26 tax year)
• Plug-in hybrids with 70-129 miles range: 6% (2025/26 tax year)
• Plug-in hybrids with 40-69 miles range: 9% (2025/26 tax year)
• Plug-in hybrids with 30-39 miles range: 13% (2025/26 tax year)
• Petrol cars emitting 100g/km: 26% (2025/26 tax year)
• Petrol cars emitting 150g/km+: 36-37% (2025/26 tax year)

The rate is locked in for the life of the car based on when it was first registered. So if you get an electric car registered in the 2025/26 tax year at 3% BIK, it stays at 3% even if rates go up for new cars registered in future tax years. That's why so many people are acting now to lock in the 2025/26 tax year rates.

Worked Example 1: Tesla Model 3 Long Range

Now compare that to an equivalent £48,000 petrol saloon emitting 100g/km. The BIK rate would be 26%, meaning you'd pay tax on £12,480 instead of £1,440. As a higher rate taxpayer, that's £4,416 more tax every year. Over a typical four-year lease, that's £17,664 you're keeping instead of paying to HMRC.

Worked Example 2: Porsche Taycan 4S

A £120,000 petrol car emitting 150g/km would face 36% BIK, meaning £43,200 taxable benefit. As a higher rate taxpayer, that's £17,280 per year in tax versus £1,440. The electric option saves you £15,840 annually. Over four years, that's £63,360. You could buy another car with the savings.

Plus, your company can claim 100% First Year Allowance on the £120,000 purchase price. At 25% Corporation Tax, that's an immediate £30,000 tax saving. Between the BIK savings and capital allowances, the real cost of that Taycan is dramatically lower than it appears.

Worked Example 3: Porsche Panamera 4 E-Hybrid

This is where it gets interesting. You've probably noticed more Panameras around. There's a reason.

The Panamera hybrid sits between fully electric and petrol. You pay more tax than a Taycan, but less than a petrol Panamera. A petrol Panamera Turbo at similar value would face 36% BIK, costing a higher rate taxpayer £14,256 per year versus £3,564. That's a £10,692 annual saving.

The 56-mile electric range means most daily commutes can be done on electric power alone. The petrol engine kicks in for longer trips. It's the sweet spot for people who want Porsche performance without the full electric commitment. And the tax savings explain why you're seeing so many of them.

Worked Example 4: Range Rover Sport P460e PHEV

A diesel Range Rover Sport with similar value emitting 230g/km would face the maximum 37% BIK rate (plus potentially a 4% diesel surcharge if it doesn't meet RDE2 standards). That means paying tax on £29,600 annually. As a higher rate taxpayer, you'd pay £11,840 per year versus £4,160. The plug-in hybrid saves you £7,680 annually.

Why Limited Company Directors Are Switching to Electric

If you're a limited company director, getting an electric car through your company is one of the most tax-efficient ways to get a vehicle. Here's why everyone's doing it.

First, you're paying tax on 3% of the car's value instead of buying it with post-tax income. If you're a higher rate taxpayer earning £80,000, you've already paid 40% income tax plus National Insurance. Buying a £50,000 car personally means you've actually earned about £83,000 to afford it. Through your company, you pay tax on just £1,500 of benefit, costing you £600 per year in tax.

Second, your company gets 100% capital allowances on electric cars until March 2026. Buy a £60,000 car and write off the entire cost in year one. That's £15,000 saved on Corporation Tax immediately. The government is basically subsidising your electric car purchase.

Third, running costs are lower. Electricity costs about 8p per mile for home charging versus 15-20p per mile for petrol. Over 10,000 miles annually, that's £700-1,200 less in fuel costs. Maintenance is cheaper too. No oil changes, fewer moving parts, less to go wrong.

Fourth, the rates are locked in. Once your car is registered in the 2025/26 tax year, its BIK rate is fixed for life based on the emissions when it was new. Get an electric car now at the 3% rate for the 2025/26 tax year and it stays at 3% even as rates increase for new cars. The government has already confirmed electric BIK rates will rise to 4% in 2026/27, 5% in 2027/28, and eventually 9% by 2029/30. Acting now to register your car in the 2025/26 tax year locks in the best rates.

The Real Cost Comparison

Let's look at the total cost of a £60,000 car over four years, comparing buying it personally versus getting it through your company.

The company car route saves you roughly £40,000 over four years. And you get a brand new car with warranty, no depreciation worries, and the ability to upgrade every few years. It's not hard to see why everyone's doing it.

What About Salary Sacrifice?

Some companies offer salary sacrifice schemes for electric cars. Instead of the company buying the car, you sacrifice part of your salary and the company leases the car for you. This can be even more tax efficient because you save on both income tax and National Insurance on the sacrificed salary.

Under salary sacrifice, you reduce your gross salary by the lease cost. If you're sacrificing £500 per month (£6,000 per year), you save 40% income tax (£2,400) plus 8% employee NI (£480). Your company saves 15% employer NI (£900). Combined savings of £3,780 per year on top of the low BIK rates.

The catch is that salary sacrifice reduces your pensionable earnings and can affect mortgage applications. But for many directors, especially those close to the pension lifetime allowance, it's another way to extract value from the company tax efficiently.

The Rates Are Going Up: Why Act Now

The government has already confirmed the BIK rate trajectory. Electric cars are 3% for the 2025/26 tax year, but will rise to 4% in 2026/27, 5% in 2027/28, 7% in 2028/29, and 9% in 2029/30. The golden window is right now during the 2025/26 tax year.

Once your car is registered in the 2025/26 tax year, its BIK rate is locked in based on the tax year it was first registered. So if you get an electric car registered during the 2025/26 tax year, you keep the 3% rate for as long as you own it, even if rates increase for new cars registered in the 2026/27 tax year onwards. A typical four-year lease means you're locked into the 2025/26 tax year rate of 3% for the entire term while new cars face higher rates.

The 100% First Year Allowance also has a deadline: March 31, 2026. After that, your company would claim capital allowances at 18% per year instead of 100% in year one. For a £60,000 car, that's the difference between a £15,000 immediate tax saving versus spreading the benefit over six years. The urgency is real.

Things to Consider

Company cars aren't right for everyone. If you're a basic rate taxpayer, the savings are smaller (though still significant). If you rarely drive or only need a car occasionally, the BIK cost might not be worth it. And you need to actually use the car for business journeys, not just personal use, to justify it properly.

You also need to think about charging. Electric cars need charging infrastructure, either at home or at work. If you're in a flat without off-street parking, or your company doesn't have workplace charging, the practicalities can be challenging. Though the charging network is improving rapidly.

And remember, the car belongs to your company, not you personally. If you sell the company or leave, the car stays with the company. You'll need to factor that into any exit planning.

The Bottom Line

If you're a limited company director considering a new car, getting an electric vehicle through your company is probably the most tax-efficient option available right now. The combination of low BIK rates, 100% capital allowances, and lower running costs creates savings that are hard to ignore.

The worked examples show the numbers. A Tesla Model 3 saves a higher rate taxpayer £4,416 per year versus an equivalent petrol car. A Porsche Taycan saves £15,840 annually. Over a typical lease term, those savings add up to serious money.

And yes, you probably are seeing more Porsche Panameras on the road. The tax savings make them incredibly attractive as company cars. When you can get a £99,000 Porsche for the tax cost of a much cheaper car, it's not surprising people are jumping on it.

The window for these rates won't last forever. Electric BIK rates are confirmed to increase, and the 100% capital allowance deadline is March 2026. If you're thinking about it, now's the time to act.

Want to understand how company car tax fits into your overall tax planning? We help limited company directors structure their finances efficiently. Book a free call to see how we can help.

Popular Company Cars for 2025/26

Based on the 2025/26 tax rates, here are some of the most popular company car choices among UK limited company directors, organised by category:

Premium Electric Saloons & Executive Cars

Luxury Electric SUVs

Performance Electric Cars

Premium Plug-in Hybrids (PHEVs)

Mid-Range Electric Cars