Businesses Face Reduced Tax Relief On Electric Company Cars From April 2027

Businesses planning to purchase electric company cars could face a significant reduction in upfront tax relief from April 2027, when the 100% First-Year Allowance is scheduled to end for new electric cars. The change will coincide with a reduction in the main rate of the Writing Down Allowance, further reducing the tax relief available on qualifying vehicle purchases.

For companies considering adding electric cars to their fleets, the approaching changes make it important to understand how the tax treatment of vehicle purchases is set to change — and how this could affect fleet acquisition decisions.

How The Tax Relief Is Changing

Under the current rules, qualifying new electric cars purchased by businesses can benefit from a 100% First-Year Allowance. This allows the full qualifying cost of the vehicle to be deducted from taxable profits in the year of purchase, rather than spreading the relief over several years.

For a business purchasing a qualifying electric car costing £60,000, this could mean a £60,000 deduction against taxable profits. At the main Corporation Tax rate of 25%, that would represent a potential tax reduction of £15,000.

However, the 100% allowance is scheduled to end on 31 March 2027. From April 2027, businesses purchasing qualifying electric cars will instead generally receive tax relief through the Writing Down Allowance system.

The main rate of Writing Down Allowance is also scheduled to fall from 18% to 12% from April 2027. This means the amount of the vehicle’s cost that can be deducted from taxable profits in the first year will be considerably lower.

Using the same £60,000 electric car as an example, a 12% allowance would provide a deduction of £7,200. At a 25% Corporation Tax rate, this equates to an initial tax reduction of £1,800.

These figures illustrate the difference in the first-year tax treatment, rather than the total tax relief available over the vehicle’s ownership. Writing Down Allowances are generally claimed over time, subject to the relevant tax rules and the business’s circumstances.

Additional Tax Pressures For Company Cars

The capital allowance changes are not happening in isolation. Businesses providing vehicles to employees also need to consider the wider tax treatment of company cars, including Benefit-in-Kind (BiK) rates.

Electric company cars currently benefit from lower BiK rates than many petrol and diesel alternatives. However, the rates are scheduled to increase over the coming years, meaning employees could face higher company car tax bills and employers may see an associated increase in Class 1A National Insurance contributions.

Businesses can read more about plug-in hybrid Benefit-in-Kind rates for 2026/27 and the wider considerations around company car tax and business fleets.

The combined effect of changes to capital allowances, BiK and employer National Insurance contributions could influence the overall cost of providing electric company cars. The impact will vary depending on whether vehicles are purchased or leased, their value, how they are used and the tax position of the business.

What Businesses Should Consider Before April 2027

Companies planning to purchase electric cars may want to review their fleet replacement schedules before the current First-Year Allowance is due to end.

Bringing forward a qualifying purchase could allow a business to benefit from the existing 100% allowance, provided the vehicle and transaction meet the relevant requirements and the purchase falls within the qualifying period. However, tax relief should not be the only factor when deciding when to replace vehicles.

Businesses should also consider purchase prices, depreciation, financing costs, charging requirements, insurance, maintenance and the expected length of vehicle ownership. Looking at the total cost of ownership of business vehicles can help provide a broader picture than focusing on the initial tax deduction alone.

It is also important to distinguish between purchasing and leasing. Capital allowances generally relate to the business that owns the qualifying asset. A business taking a vehicle through a lease arrangement will have a different tax treatment, so it should not assume that it can claim the same 100% First-Year Allowance as a business purchasing the car.

Companies considering leasing rather than buying can review CVC’s guide to business car leasing and its explanation of Business Contract Hire. The VAT treatment of leased vehicles is another separate consideration, covered in CVC’s guide to reclaiming VAT on a car or van lease.

The right approach will depend on each organisation’s fleet requirements, cash flow, tax position and vehicle replacement plans. Businesses should seek advice from their accountant or tax adviser before making decisions based on the changing allowances.

Impact On Electric Vehicle Fleet Decisions

The scheduled changes introduce another consideration for businesses weighing up the cost of transitioning to electric company cars. While the reduction in upfront capital allowance relief may make some purchases less attractive from a tax perspective, it does not automatically mean that electric vehicles will be unsuitable for business use.

Running costs, employee requirements, mileage patterns, charging access and the availability of suitable models will continue to influence fleet decisions. Businesses should assess the financial implications over the full period they expect to operate each vehicle, rather than relying on one tax incentive.

For organisations that are still considering their options, comparing outright purchase with leasing can help establish which funding route is most appropriate. CVC offers a range of business car leasing options and van finance solutions to help businesses find vehicles and funding arrangements that suit their operational requirements.