If you regularly use a car for work, it’s worth thinking about whether to invest in a company car through the business, or continue to use your own car and reimburse yourself for mileage. If you are already financing your car personally, you might be missing out on valuable tax advantages compared to owning it through the business. One solution? Consider purchasing a new electric car through your company.
This approach aligns with the growing push for environmentally friendly practices by SMEs, and also makes sound financial sense in many cases. In this article, we’ll look at why buying an electric car for your business might be the right move this year, and the benefits it can bring you.
Why Buy An Electric Vehicle?
Buying a company car in 2025 only really makes sense if it’s an electric vehicle (EV). In 1989, up to 60% of all cars sold in the UK were purchased by companies for the benefit of their employees. Since then, however, successive governments have increased the tax due on company cars as a taxable benefit, and closed the loopholes that saved business owners and their employees money.
Now, however, company cars are making something of a comeback. This is because the government has recently introduced a variety of schemes and incentives to encourage EV adoption by business owners, making it a more tax efficient option.
When You Invest In An Electric Car For Your Company, You May Be Eligible For The Following Perks:
- Capital allowances – Electric cars qualify for 100% first year capital allowance, meaning you can write off the full cost of the car against your profits in the same year.
- Lower benefits in kind (BIK) tax – If the car is used by you or your employees, it will attract minimal benefit in kind rates compared to diesel powered or petrol cars. BIK rates for fully electric cars are still incredibly low, providing a substantial tax saving.
Should You Put Your Car On The Business Books?
Potentially, yes. If you currently finance your car personally and predominantly use it for business purposes, switching your finance or leasing payments to your company could be a smart financial move. Doing so allows your SME to cover the associated expenses, including insurance, maintenance, and finance payments as deductible business costs for Corporation Tax purposes.
However, if you also use the car for personal purposes, owning the car through the company could impact your personal tax liability by accruing BIK tax charges – although this is significantly lower for electric cars than other vehicles.
Professional Support From Your Accountant
One of the main roles of a small business accountant is to help business owners navigate the complexity of tax benefits and business expenses. We can, for example, help break down exactly how switching to an electric vehicle might boost your bottom line while also ensuring tax compliance. For example, we can help you assess the tax impact of any ongoing savings, advise you on any additional grants or subsidies available for EV purchases, and explain the VAT reclaim potential on car purchases or leases.
If this isn’t something you’ve discussed with your accountant yet, have a chat with one of our team and we will help you weigh the business benefits and potential personal costs to determine which makes the most sense for your circumstances.
Next Steps
Still unsure whether to purchase a company car? For a candid discussion of the costs and benefits of buying a car for your business, please give one of our business advisors a call on 0115 647 4462, or click here to send us a message.
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