Tax planning · UK · 2025/26
How to legally reduce your Company Car & Vehicle Tax
Company car tax depends almost entirely on how clean the car is — which is why going electric can cut the bill by thousands a year. Here are the legitimate ways to pay less, in plain English, with a tool comparing an electric and a petrol company car.
📘This is education, not advice. The rates and reliefs below exist in UK law. Choosing a low-emission car or a salary sacrifice scheme is legal planning. Using a company car privately without declaring it, or faking business mileage, is tax evasion — which is illegal. Check the details with your employer and an adviser.
Enter the car's list price and your tax rate. The tool compares the annual company car tax on an electric car (3%) with a petrol equivalent.
Illustration of company car tax only, 2025/26 (electric at 3%). Salary sacrifice can add National Insurance savings. The electric benefit rate is set to rise gradually in later years. Doesn't replace advice. Open the full vehicle tax calculator →
The reliefs, explained simply
Each card tells you what it is, who can use it, and what to watch out for — with a link to the official HMRC guidance.
⚡ Electric company car (3%)
Company car drivers
A fully electric company car is taxed on a 3% benefit-in-kind for 2025/26 — versus up to 37% for petrol or diesel. On a £40,000 car, that's the difference between a few hundred pounds and several thousand a year.
Who: employees and directors offered a company car.
Watch out: the electric benefit rate is scheduled to rise gradually over the next few years — still low, but check the year.
Official guidance →
🔄 EV salary sacrifice
Employees
Many employers offer an electric car through salary sacrifice. Because you give up gross salary, you save income tax and National Insurance — and the low 3% benefit keeps the tax on the car itself tiny.
Who: employees whose employer runs an EV scheme.
Watch out: a lower salary can affect mortgage borrowing and some benefits; you can't sacrifice below minimum wage.
Official guidance →
🏢 Capital allowances on EVs
Businesses
A business buying a new, unused fully electric car can usually claim a 100% first-year allowance, deducting the whole cost from its profits in the year of purchase.
Who: companies and sole traders buying qualifying electric cars.
Watch out: petrol/diesel cars get much slower allowances; private use is adjusted for sole traders.
Official guidance →
🚐 Lower emissions or a van
Drivers
Benefit rates climb steeply with CO₂, so a lower-emission car costs less in tax. For some, a company van (which has a flat, often lower, benefit charge) is cheaper still.
Who: anyone choosing a company vehicle.
Watch out: a van must genuinely be a van and used mainly for business — private use beyond commuting is taxable.
Official guidance →
🛣️ Mileage allowance (own car)
Everyone
Use your own car for work? You can claim 45p a mile for the first 10,000 business miles (25p after), tax-free. If your employer pays less, you can claim the difference.
Who: employees and the self-employed driving their own car for business.
Watch out: ordinary commuting to a permanent workplace doesn't count — keep a mileage log.
Official guidance →
🪪 Road tax (VED) sense
Everyone
From April 2025, electric cars pay road tax too, and the £40,000+ "expensive car supplement" now applies to them. EVs are still cheap to run, but the VED gap has narrowed — factor it in.
Who: all vehicle owners.
Watch out: first-year ("showroom") VED is based on CO₂ and can be high for the dirtiest new cars.
Official guidance →
Legal planning vs. illegal evasion
Choosing a cleaner car or a salary sacrifice scheme is legitimate. Hiding private use is not.
✓ Legal planning
Choosing an electric company car; joining an EV salary sacrifice scheme; claiming capital allowances; claiming genuine business mileage.
✗ Illegal evasion
Using a "pool car" privately without declaring it; inventing business mileage; claiming a car is a van when it isn't.
Frequently asked questions
How can I reduce company car tax?
Choose a fully electric or very low-emission car (electric is taxed on just 3% for 2025/26), use an EV salary sacrifice scheme to also save National Insurance, and consider a van where it fits.
How much less is electric company car tax?
On a £40,000 car, a 40% taxpayer pays about £480 a year electric (3%) versus roughly £4,640 petrol (29%) — over £4,000 a year saved.
Can my business write off an electric car?
A company buying a new, unused fully electric car can usually claim a 100% first-year allowance, deducting the whole cost in the year of purchase.
Do electric cars still avoid road tax?
No longer — from April 2025 EVs pay VED, and the expensive-car supplement applies to those over £40,000. They remain cheap to run, but the gap has narrowed.
Related
Educational guide — not tax or financial advice. UK company car and vehicle tax for 2025/26. Benefit-in-kind percentages, allowances and VED change over time (the electric benefit rate is set to rise; EVs began paying VED in April 2025). Whether a relief applies depends on your circumstances. Always confirm with
HMRC and a qualified adviser before acting.