Guide for company directors and owner-managers

Should your company buy an electric car before 31 March 2027?

If you were already planning an electric company car in the next year or so, buying it by 31 March 2027 lets the company deduct the whole cost from its profits in one go. After that date the same car gets tax relief spread over many years. It mainly changes when you get the relief rather than how much, so it is never a reason to buy a car the business does not need.

Talk to us before you buy Read our Budget 2026 guide

By Joe Gilbert ACMA CGMA, Client Finance Director at Elm Financial Solutions. Figures checked on GOV.UK on 4 November 2026. Last reviewed November 2026.

What is changing

The 100% allowance ends next spring

The Budget on 28 October 2026 did not extend it.

The deadline

The 100% first-year allowance for new zero-emission cars ends on 31 March 2027 for companies and on 5 April 2027 for sole traders and partnerships.

Which cars qualify

New and unused cars with zero CO2 emissions, which in practice means fully electric. Hybrids and plug-in hybrids do not qualify, and nor do second-hand cars.

What happens after

A new electric car bought later goes into the main pool. The Budget cut its writing-down allowance from 14% to 12% a year for accounting periods starting on or after 1 April 2027. Cars cannot use the Annual Investment Allowance or the main-rate first-year allowance (40% now, 50% from 1 January 2027).

Worked example

What the deadline is worth in cash

Take a company that pays corporation tax at the 25% main rate and buys a new electric car for £40,000.

Bought by 31 March 2027, the whole £40,000 is deducted in the accounting period it is bought, cutting that period's corporation tax by £10,000.

Bought after the deadline, the car gets a writing-down allowance instead. At the 12% rate for accounting periods starting on or after 1 April 2027, the first year's allowance is £4,800, saving £1,200 in tax. The allowance then shrinks each year, so after five years the company has saved about £4,700 in tax, against £10,000 in year one.

A company paying the 19% small profits rate would save £7,600 up front instead of £10,000.

The relief is mostly about timing

Without the 100% allowance the cost is still relieved over time, just more slowly. If the company sells the car, the sale price is deducted from the pool and can create a taxable balancing charge, which is likely after a 100% allowance. Selling for less than the pool value does not give a company an immediate deduction. Getting the relief sooner helps cash flow, and the tax rate can differ from year to year.

Timing

Buying means delivered, not just ordered

The deadline applies to when the company incurs the cost, not when it places the order.

For an outright purchase, the cost is normally incurred when the obligation to pay becomes unconditional, which is usually on delivery. On hire purchase, the capital cost still to be paid is treated as incurred on the date the car is brought into use in the business.

So the car needs to be delivered and in use by 31 March 2027. Paying a deposit in February for a car delivered in May will not secure the allowance. Check delivery times with the dealer now and leave a margin before the deadline.

Your year end matters too

The allowance reduces the corporation tax for the accounting period in which the cost is incurred. If your year end is not 31 March, we can tell you which year's tax bill a purchase would reduce and when that tax is due.

Before you buy

The other costs to weigh up

The capital allowance is only one part of the picture. These apply whenever you buy.

Company car tax for the driver

The driver pays income tax on a percentage of the car's list price. For a fully electric car it is 4% in 2026 to 2027, 5% in 2027 to 2028, 7% in 2028 to 2029, 9% in 2029 to 2030 and 10% in 2030 to 2031. On a £40,000 car in 2027 to 2028, that is a £2,000 taxable benefit: £800 of tax for a higher rate taxpayer.

National Insurance for the company

The company pays Class 1A National Insurance at 15% on the taxable benefit: £300 a year on the example above. From 6 April 2027, company cars must be reported and taxed through payroll each month instead of on a P11D.

Road tax

Electric cars have paid vehicle tax since April 2025. Electric cars first registered from 1 April 2025 with a list price over £50,000 also pay the expensive car supplement. From 1 April 2028, a new pay-per-mile charge of 3p a mile applies to electric cars.

Leasing instead

A leased car does not qualify for capital allowances, but the lease rentals are deductible from profits as you pay them. The 15% restriction on lease rentals only applies to cars with CO2 emissions over 50g/km, so it does not affect electric cars, and there is no deadline to beat.

Before or after the deadline

The same £40,000 electric car, bought at different times

For a company paying corporation tax at 25%. The driver's company car tax is the same either way.

Bought after 31 March 2027

12% writing-down allowance a year on the reducing balance

£1,200 of corporation tax saved in the first year

About £4,700 saved after five years

Bought by 31 March 2027

100% of the cost deducted in one go

£10,000 of corporation tax saved in the first year

Better cash flow from day one

Checklist

If you are thinking of buying

Check the car qualifies
It must be new and unused with zero CO2 emissions. Plug-in hybrids and second-hand cars do not qualify.
Check the timing
The cost must be incurred by 31 March 2027 for a company, or 5 April 2027 for a sole trader or partnership. On hire purchase, the car must be in use by then.
Work out the driver's tax
Use the list price, not the price you paid, and the percentage for each tax year you expect to keep the car.
Check the cash
Compare buying outright, hire purchase and leasing. Do not stretch the business's cash flow to beat a tax deadline.
Talk to us before you sign
We will run the numbers for your profits and year end, and confirm which tax bill the allowance reduces.

Read our Budget 2026 guide How to build a cash flow forecast

Common questions

Electric company cars: your questions answered

Does a plug-in hybrid qualify?

No. The 100% allowance is only for cars with zero CO2 emissions. A plug-in hybrid has a petrol or diesel engine, so it does not qualify.

What about a second-hand or ex-demo electric car?

A second-hand electric car does not qualify and gets the main rate writing-down allowance instead. HMRC accepts that a car used only for delivery, test drives or as a dealer's demonstrator, with limited mileage, can still count as unused. Check with us before relying on this.

I am a sole trader. Does this apply to me?

Yes, with a deadline of 5 April 2027. If you also use the car privately, the allowance is reduced by the private use share. If you claim the simplified mileage rate for a car, you cannot also claim capital allowances on it.

What about an electric van?

Vans are not cars for capital allowances, so a business can usually claim the full cost of a van, electric or not, through the £1 million Annual Investment Allowance. The 31 March deadline does not apply. Note that double-cab pick-ups are now treated as cars, even with a payload of one tonne or more.

What about a charge point?

The separate 100% first-year allowance for electric vehicle charge points ends on the same dates. For most businesses this makes little difference, because a charge point at the business premises can usually be claimed in full through the Annual Investment Allowance instead.

What happens if we sell the car later?

The sale price is deducted from the pool and can create a taxable balancing charge, which is likely if you claimed the 100% allowance. The 100% allowance mainly speeds up the relief rather than increasing it.

Talk to Elm

Planning a company car? Run the numbers first

We will compare buying before and after the deadline, leasing, and the tax for the driver, based on your own profits and year end.

Book a no-obligation chat Ask AI a quick question

Call 07966 795440 or email info@elmfinancial.co.uk. Based in Matlock, Derbyshire, working with businesses across the UK.

Joe Gilbert ACMA CGMANovember 4, 2026

Sources: GOV.UK, Capital allowances: extension of first-year allowances for zero-emission cars and chargepoints (Budget 2025); Capital allowances: reduce the main rate writing-down allowance and increase the main rate first-year allowance (Budget 2026); HMRC Capital Allowances Manual CA23153 and CA23220; Claim capital allowances: business cars; Taxation of company cars: appropriate percentages for 2028 to 2030 and 2030 to 2032; Vehicle Excise Duty expensive car supplement threshold for zero-emission cars; HMRC Business Income Manual BIM47714; Budget 2026 overview of tax legislation and rates. All checked 4 November 2026. Rates announced at Budget 2026 are subject to legislation. Last reviewed November 2026. This guide is general information, not advice for your circumstances.

First-year allowance extension on GOV.UK Capital allowances for business cars on GOV.UK Company car tax rates on GOV.UK