Thinking about purchasing an electric car for your business? You may want to act sooner rather than later.
An important tax allowance is set to expire in April 2027, meaning businesses could soon lose the opportunity to claim 100% of the qualifying purchase cost against their taxable profits upfront.
While much of the attention following the Autumn Budget 2026 has focused on the headline announcements, this particular change may have gone unnoticed.
With the deadline approaching, now is a good time for business owners to review their plans and consider how the changes could affect their tax position.
What is the 100% first-year allowance for electric cars?
Currently, businesses purchasing a new and unused electric car with zero CO₂ emissions can benefit from a 100% first-year allowance (FYA).
This allows the full qualifying cost of the vehicle to be deducted from taxable profits in the accounting period in which the expenditure is incurred, potentially delivering a significant tax saving.
For example, if a limited company purchases a qualifying electric car for £40,000, it could deduct the full £40,000 from its taxable profits in that period.
For a company paying Corporation Tax at 25%, this could result in a tax saving of £10,000, provided it has sufficient taxable profits to benefit from the deduction.
However, this generous relief is coming to an end.
When will the electric car tax allowance end?
The 100% first-year allowance is currently due to expire on:
- 31 March 2027 for Corporation Tax purposes.
- 5 April 2027 for Income Tax purposes.
Although the allowance has been extended several times in previous years, the government has not announced a further extension following the Autumn Budget 2026.
This means businesses wishing to take advantage of the existing relief should review their purchasing plans ahead of these deadlines.
Importantly, simply ordering a vehicle before the deadline may not be enough. The qualifying expenditure must be treated as incurred before the relevant date, which will depend on the purchase agreement and individual circumstances.
What happens to electric car tax relief from April 2027?
Businesses will still be able to claim capital allowances on qualifying electric cars purchased after the deadline. However, the relief will generally be spread over several years rather than being available in full upfront.
From April 2027, fully electric cars will typically qualify for writing-down allowances (WDAs).
The Autumn Budget 2026 also confirmed that the main rate of writing-down allowances will reduce from 14% to 12%.
This means businesses purchasing a qualifying electric car after the deadline will generally receive tax relief through annual writing-down allowances at 12% of the remaining qualifying expenditure, rather than claiming the full cost immediately.
Transitional rates may apply where an accounting period spans April 2027.
What could this mean in practice?
Consider a limited company purchasing a new electric car for £40,000.
The difference in the timing of the available tax relief could be significant.
| Before the deadline | After the deadline | |
|---|---|---|
| Electric car purchase | £40,000 | £40,000 |
| Initial capital allowance rate | 100% | 12% |
| Initial tax deduction | £40,000 | £4,800 |
| Potential Corporation Tax saving at 25% | £10,000 | £1,200 |
This is an illustrative example based on a 12-month accounting period, sufficient taxable profits and a 25% Corporation Tax rate. Actual tax relief will depend on individual circumstances.
As the example demonstrates, purchasing a qualifying electric car before the deadline could allow a business to benefit from the full tax deduction immediately.
After the deadline, the same business would generally receive tax relief gradually over several years, with writing-down allowances calculated on the reducing balance.
Although the overall amount of tax relief available is not necessarily changing, the timing of that relief could make a noticeable difference to cash flow, particularly for businesses planning significant vehicle investments.
What about electric vehicle charging points?
It’s not just electric cars that are affected.
The existing 100% first-year allowance for qualifying electric vehicle charging equipment is also scheduled to end in April 2027.
Businesses planning to install charging infrastructure may therefore want to review their investment plans alongside any vehicle purchases.
Other forms of capital allowance may still be available for charging equipment, depending on the circumstances, so it’s worth seeking advice before making a decision.
Should businesses bring forward their electric car purchases?
For businesses already considering purchasing an electric vehicle, bringing forward the investment could offer a valuable tax planning opportunity.
However, purchasing a vehicle should always make commercial sense, and the availability of tax relief is just one factor to consider.
Before proceeding, businesses should review:
- Timing: Will the qualifying expenditure be incurred before the relevant deadline?
- Tax position: Will the business have sufficient taxable profits to benefit from the available relief?
- Vehicle eligibility: Is the car new, unused and fully electric, with zero CO₂ emissions?
- Financing arrangements: Could the way the vehicle is purchased affect the availability or timing of tax relief?
- Wider implications: Are there other tax considerations, including VAT and company car benefit-in-kind charges, that need to be taken into account?
Taking the time to review these factors now could help businesses make a more informed decision and avoid missing out on valuable upfront tax relief.
Planning ahead could make all the difference
If you’re considering purchasing an electric car for your business, reviewing your options now could help you make the most of the tax reliefs currently available.
Our team can help you understand how these changes could affect your business and identify the most appropriate approach for your circumstances.
Get in touch with our team today to discuss your plans.