Businesses currently purchasing a new zero-emission car can claim 100% tax relief upfront. However, this relief is due to end from April 2027 and simply having a car on order before the deadline may not be enough. Understanding the timing rules now could make a significant difference to the speed at which tax relief is obtained.
What Relief Is Changing?
Currently, businesses purchasing a new zero-emission car can generally claim a 100% First Year Allowance (FYA). This allows the full cost of the car to be deducted against taxable profits in the year the expenditure is incurred, providing immediate tax relief and a valuable cash flow benefit.
However, the relief is due to end for expenditure incurred on or after:
- 1 April 2027 for Corporation Tax purposes; and
- 6 April 2027 for Income Tax purposes.
After these dates, businesses will no longer be able to claim a full deduction upfront for the cost of a new electric company car.
What Tax Relief Will Be Available Instead?
The withdrawal of the 100% First Year Allowance does not mean tax relief disappears altogether.Instead, businesses will generally obtain tax relief through annual Writing Down Allowances (WDAs), meaning relief will be spread over a number of years rather than being received immediately.
In the October 2026 Budget, the Government announced that the main pool Writing Down Allowance rate will reduce from 14% to 12% from April 2027. As electric cars acquired after the expiry of the 100% First Year Allowance are expected to move into the normal capital allowances regime, this means many businesses may be restricted to obtaining tax relief at a rate of just 12% per annum on a reducing balance basis, rather than receiving relief on the full cost of the car in year one.
Example: Consider a business purchasing a new electric company car for £50,000:
- If the purchase qualifies for the current 100% First Year Allowance, tax relief may be available on the full £50,000 immediately.
- If the purchase takes place after the relief expires, the first year’s capital allowance claim may be limited to approximately £6,000, with relief on the remaining expenditure spread over future years. Whilst the total amount of tax relief available may ultimately be similar, the difference in timing could have a significant impact on business cash flow.
Ordering a Car Before April 2027 unlikely to be enough
One of the most important points for businesses to understand is that simply placing an order before the deadline does not necessarily secure the current 100% tax relief.
For capital allowances purposes, expenditure is generally incurred when there is an unconditional obligation to pay.
In practice, this means that ordering an electric company car before April 2027 may not be enough if the unconditional obligation to pay does not arise until after the relief has expired.
For many standard car purchases, the unconditional obligation to pay arises when the car is delivered.
Businesses should therefore carefully consider:
- when the contract becomes legally binding;
- when the supplier fulfils its contractual obligations;
- when the unconditional obligation to pay arises; and
- whether any deferred payment arrangements are in place.
With some manufacturers continuing to have lengthy lead times, businesses considering an electric company car should avoid leaving decisions until the final months before the relief expires.
Could Leasing Become More Attractive?
With the withdrawal of the 100% First Year Allowance for new zero-emission cars from April 2027, leasing may become a more attractive option for some businesses, particularly where cash flow flexibility is important.
Unlike purchasing a car, where tax relief may in future be limited to Writing Down Allowances claimed over a number of years, lease rentals are generally deductible as they are incurred. In addition, the current 15% lease rental restriction generally applies only to cars with CO₂ emissions exceeding 50g/km. As a result, fully electric cars can continue to benefit from relatively favourable tax treatment when leased.
Whilst the most appropriate option will depend on a business’s individual circumstances, the withdrawal of immediate 100% tax relief on purchased electric cars may prompt some businesses to revisit whether leasing offers a more suitable commercial and tax outcome
What Should Businesses Do Now?
With the withdrawal of the 100% First Year Allowance now approaching, businesses considering the purchase of an electric company car should review their plans sooner rather than later. Understanding when expenditure is incurred, and whether alternative arrangements such as leasing may be more appropriate, could make a significant difference to the timing of tax relief available.
If you would like any assistance in assessing the impact of these changes or reviewing your options, please contact the Tax Team at Burgis & Bullock. We would be happy to help www.burgisbullock.com/contact-us/
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