Electric cars have become an attractive option for many business owners, helped by favourable company car tax rates and generous upfront tax relief. However, the Autumn Budget 2026 and the accompanying Finance Bill bring changes that could make electric cars more expensive to buy and run through a business. Some take effect in April 2027, so it’s worth reviewing your plans now rather than waiting until your next vehicle is due for replacement. 

So what’s changing? Let’s take a look…

Upfront tax relief is due to end

Businesses buying a qualifying new and unused zero-emission car can currently claim a 100% first-year allowance. This means the qualifying cost can be deducted when calculating taxable business profits, rather than tax relief being spread over several years. 

This relief is currently due to expire on:

– 31 March 2027 for companies paying Corporation Tax.

– 5 April 2027 for businesses paying Income Tax, including sole traders and partnerships. 

Unlike previous years, the latest Budget and Finance Bill have not extended these deadlines. Unless the government changes course, purchases after those dates will receive tax relief much more slowly through annual ‘writing-down allowances’. 

Cars do not qualify for the Annual Investment Allowance or full expensing. They’re also excluded from the separate main-rate first-year allowance, so those reliefs cannot simply replace the expiring electric car allowance. 

Annual tax relief will also become less generous

Alongside the end of the upfront allowance, the government has announced a reduction in the main writing-down allowance from 14% to 12% from April 2027. This is the rate that would normally apply to electric cars without access to the dedicated first-year allowance. 

The allowance applies to the remaining tax value each year, rather than the original purchase price. The result is a much longer wait to receive tax relief on the cost of the vehicle. Accounting periods spanning the change will use a blended rate. 

For business owners, this is principally a cashflow issue: the timing of tax relief can make a significant difference to the effective cost of an investment.

Our Autumn Budget 2026 Summary includes further background on these capital allowance changes. 

Company car tax is rising too

Where a company car is available for private use, the director or employee normally pays tax on a benefit-in-kind. Broadly, this is calculated using the car’s list price, including taxable accessories, multiplied by the relevant company car percentage. 

For fully electric cars, the published percentages are:

• 2026/27 – Company car percentage 4% 

• 2027/28 – Company car percentage 5% 

• 2028/29 – Company car percentage 7% 

• 2029/30 – Company car percentage 9%

• 2030/31 – Company car percentage 10%

The 2030/31 increase was announced in the latest Budget. Electric cars still attract substantially lower percentages than many petrol and diesel cars, but the difference is narrowing. 

These percentages are not the employee’s tax rate. They establish the taxable benefit, on which the individual then pays Income Tax. Employers also need to factor in the associated Class 1A National Insurance cost. 

If you’re considering a car that will remain in the business for several years, looking only at the current year’s benefit could give a misleading picture.

Public and workplace charging: VAT clarified

New legislation that took effect from 1 November 2026 confirms that electricity supplied through public and workplace charging points does not qualify for the VAT relief available to domestic electricity supplies. For ordinary commercial supplies, the standard 20% VAT rate applies. 

The change follows a tribunal decision that challenged HMRC’s treatment of some public charging supplies. The legislation now puts the position beyond doubt and also covers workplace charging points accessible to employees and contractors. 

Electricity used to charge a car through a household electricity supply is treated differently and can continue to qualify for domestic electricity relief. Where you expect to charge the car is therefore an important part of the running-cost calculation.

A mileage charge is coming from April 2028

The government is also introducing electric Vehicle Excise Duty, or eVED, from April 2028. This was first announced in the Autumn Budget 2025 and will be an additional mileage-based charge alongside existing Vehicle Excise Duty. 

The announced rates are:

• 3p per mile for fully electric cars.

• 1.5p per mile for plug-in hybrid cars. 

At those rates, a fully electric car travelling 10,000 miles a year would incur an additional £300 annually.

The government’s reasoning is that fuel duty receipts will fall as more drivers switch away from petrol and diesel. The new charge is intended to replace some of that lost revenue while retaining an incentive to choose electric. 

What should business owners do now?

These changes do not automatically mean that an electric car is the wrong choice. They do mean though that a decision based on older tax assumptions needs another look.

Before committing to a purchase or lease:

• Review your replacement timetable. If you already intend to buy a qualifying new electric car, check whether the purchase can sensibly take place before the relevant first-year allowance deadline. Don’t assume that placing an order alone secures the relief.

• Compare the full ownership period. Include the purchase or lease cost, timing of tax relief, company car tax, employer National Insurance, insurance, charging and expected resale value.

• Check your charging arrangements. A driver relying on public charging may face a different cost picture from someone charging mainly at home.

• Include future mileage costs. Build the planned April 2028 charge into forecasts for cars you expect to keep beyond that date.

• Protect your cashflow. Bringing forward a purchase purely to obtain tax relief may not be worthwhile if it places unnecessary pressure on the business.

The approaching allowance deadline and the scheduled increases in company car tax make advance planning particularly useful. 

Would it help to talk it through?

As we highlighted in our earlier electric car grant update , choosing a business vehicle can be an expensive and complex decision. The latest changes make it even more important to consider your particular circumstances. 

If you’re planning to buy or replace an electric company car, please check your decision and the potential implications before committing. Your accountant should be able to compare the options, check the timing of any available relief and explain exactly what any decision would mean for you and your business.