Key takeaways
- Current position: Where a business buys a new electric car before April 2027, 100% tax relief may be given in the year of purchase.
- From April 2027: Where an electric car is purchased from April 2027 onwards, tax relief will be given through writing down allowances.
- Cashflow implications: Businesses that are considering buying an electric car from March 2027 should note that tax relief will be given more slowly than would have been the case previously.
Tax relief is given for some types of capital expenditure through the capital allowances regime. This could be in the form of:
- accelerated capital allowances (eg, a FYA or the annual investment allowance (AIA));
- writing down allowances (WDA); or
- a combination of the accelerated capital allowances and WDA in some circumstances.
Tax relief is given more quickly where accelerated capital allowances are available. For example, where a 100% FYA or the AIA is claimed, tax relief may be given in full in the period in which the expenditure is incurred.
Current 100% FYA for electric cars
Since 2002, there has been a 100% FYA for expenditure on cars with low carbon dioxide emissions (s45D, Capital Allowances Act (CAA) 2001). Initially, the threshold for low carbon dioxide emissions was set at 120gm/km and the FYA was due to expire in April 2008. Over the years, the threshold has been tightened and the qualifying period extended several times.
Currently, the threshold is 0gm/km (in effect, restricting it to all-electric cars) and the FYA is due to expire in April 2027.
Position from April 2027
The Finance Bill 2026-27, which was introduced to Parliament in November, does not include legislation to extend the 100% FYA for low carbon dioxide emissions. Therefore, the FYA will no longer be available for expenditure incurred on or after 1 April 2027 for corporation tax purposes and 6 April 2027 for income tax purposes.
As expenditure on cars does not qualify for any other type of accelerated capital allowance, WDA will be given for expenditure incurred on or after 1 April 2027 for corporation tax and 6 April 2027 for income tax purposes on cars with low carbon dioxide emissions. The rates of WDA for cars are:
- CO2 emissions of between 0g/km and 50g/km: 12% (reduced from 14% with effect from 1 April 2027 for corporation tax and 6 April 2027 for income tax purposes, as announced at the Autumn budget 2026); and
- CO2 emissions of more than 50g/km: 6%.
Although this will not affect the amount of tax relief given overall, it will change when tax relief is given. It is important that businesses and their advisers are aware of this so that they can plan accordingly.
Other types of FYA
The 100% FYA for expenditure on an electric vehicle charging point (s45EA, CAA 2001) will also cease from April 2027. A different type of accelerated capital allowances, or the WDA, may be available depending on the circumstances.
Further information
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