Electric company cars remain a powerful lever for reducing costs and emissions in 2025/26. The headline story is simple: Benefit-in-Kind (BiK) on zero-emission cars is still low, salary sacrifice keeps delivering payroll savings for both sides, and VAT recovery on workplace and public charging is clearer than it used to be. Put together, these tax perks can make a material dent in total cost of ownership and employee reward costs — even with rising Vehicle Excise Duty (VED) and gradual increases in BiK over the next few years.
If you are refreshing your fleet policy, modelling retention packages or reviewing car allowances, now is the time to check the numbers. For 2025/26, fully electric company cars attract a 3% BiK rate, scheduled to rise by one percentage point each April until 2027/28 (still far below most petrol and diesel bands). That single figure underpins many of the savings discussed below and is central to salary sacrifice planning. Meanwhile, HMRC’s guidance confirms you can recover input VAT on business charging at work or at public points, subject to the normal rules and evidence.
The market data backs up the direction of travel. HMRC reports 840,000 employees paid company car tax in 2023/24, up 80,000 year-on-year, and fully electric cars now account for 41% of car benefit recipients — a rapid shift that reflects how widely these tax perks are being used (HMRC, 2025).
What changed on 6 April 2025
From 6 April 2025, the BiK rate for zero-emission cars moved from 2% to 3%, with further 1% rises set for April 2026 and April 2027 (to 5%). Government policy currently signposts a 5% rate by April 2028. (GOV.UK).
VED changed too: new zero-emission cars registered from 1 April 2025 pay £10 in year one and then the standard rate thereafter. EVs first registered between 2017 and 31 March 2025 pay the standard rate from renewal. (GOV.UK).
For day-to-day payroll, remember HMRC’s Advisory Electricity Rate (AER) for reimbursing business miles in company EVs — this rate is reviewed periodically, so build a control to keep it current in payroll and expenses. (HMRC rates page).
Salary sacrifice: The headline tax perks explained
Why it still works: Cars with CO₂ emissions of 75 g/km or less (which includes fully electric) are outside the Optional Remuneration Arrangement (OpRA) “higher of cash or benefit” rules. That means the taxable value is the BiK amount, not the salary foregone. So employees save Income Tax and employee National Insurance on the sacrificed salary, and employers save Class 1 NIC on the same amount — while the employee pays BiK based on that low 3% rate. See HMRC’s OpRA rules and professional commentary from the Association of Tax Technicians.
Who benefits most:
• Higher-rate taxpayers: The gap between salary tax/NIC and a 3% BiK often produces strong net pay outcomes compared to a cash allowance.
• Employers: NIC savings can be recycled into reduced lease costs or broader benefits, improving the overall package and retention.
• Cashflow: Salary sacrifice is predictable and easy to budget for, which helps with benefit cost control.
Risks to manage: Early-termination, damage and mileage charges sit in the small print. Align your leaver policy and insurance with HR to avoid surprises.
VAT on charging: what you can reclaim in 2025/26
HMRC’s Notice 700/64: Motoring expenses now includes a section on electricity for charging EVs. In short: businesses can recover input VAT on the business element of electricity used to charge company cars at work or at public charge points, subject to the usual rules and evidence. Keep proper VAT invoices and apply a fair and reasonable apportionment where there is any private use.
Where employees charge at home, HMRC’s position is that the electricity supply is to the employee, not the employer, so input VAT is not recoverable by the business for company cars in most cases. Consider practical alternatives such as paying the AER for business miles or encouraging more workplace charging. For specific edge cases, HMRC’s Revenue & Customs Brief 1/2022 sets out points under review for home charging reimbursement evidence.
Planning ahead: rising rates and policy signals
The 3% BiK on EVs is set to rise by one percentage point in April 2026 and April 2027 to 5%. Current policy then increases zero-emission rates more quickly from 2028/29 and 2029/30 (already published in draft for legislation). Build those steps into your lease terms, total reward models and driver communications.
Even with these increases, the gap to higher-emission vehicles remains large. That is why HMRC data shows the shift to low-emission and electric company cars: 534,000 company car users were in vehicles with emissions of 75 g/km or less in 2023/24, and EVs accounted for 41% of recipients.
Quick wins to check now
- Salary sacrifice policy: Confirm OpRA treatment, eligibility and early-termination terms.
- P11D and payroll: Align BiK bands, check the AER, and automate driver communications.
- VAT evidence: Capture VAT invoices for workplace and public charging, and document any business/private apportionment.
- Workplace charging: Review on-site charging capacity and policies to reduce reliance on home charging.
- Car choice and options: Manage list price and optional extras to keep P11D values sensible.
- Driver education: Provide guidance on expenses, home charging vs workplace, and expected costs.
Where we can help
We support employers on tax, payroll and VAT planning for fleet decisions — from policy design and supplier selection, to compliance and reporting. If you would like a view on your numbers or a sense-check of your benefits mix, our team can help you make the most of the tax perks while staying compliant. Read about our VAT services, explore our services, or contact us to discuss your fleet strategy.
The picture for 2025/26 is clear. With BiK at 3% for fully electric cars and VAT recovery possible on business charging at work and in public, electric company cars can be a cost-effective part of your reward and decarbonisation plans. The BiK rises pencilled in for the next few years do not erase the advantage — they just underline the need to plan ahead and set realistic expectations. Build in future rates, review your salary sacrifice pipeline, and tighten your VAT documentation now.
If you want a tailored analysis of your options — including cash allowance comparisons, salary sacrifice scenarios and VAT impact — talk to us. We will quantify the tax perks available to your business and help your team make informed decisions that stand up to scrutiny.