Electric vehicles (EVs) are popping up everywhere. Whether you are eyeing up a Tesla or a Polestar, the tax rules can be a bit of a minefield.
Because EVs have so many incentives (like 2% Benefit in Kind and zero road tax), many people assume they are also VAT-free.
Spoiler alert: They aren’t.
But, depending on how you buy and use the car, you might be able to claim some of that VAT back. Here is the dead simple guide to the rules for 2025/2026.
Is There VAT on Electric Cars?
Yes. Sorry to be the bearer of bad news, but electric cars are treated exactly the same as petrol or diesel cars when it comes to VAT.
You will be charged the standard 20% VAT on the purchase price or lease payments, regardless of whether it’s a hybrid or fully electric.
However, if you are a VAT-registered business, you might not have to swallow that whole cost.
Scenario 1: Personal Use
The Rule: You cannot claim the VAT back.
If you are buying or leasing an EV personally—or even through your business but with significant personal use—you generally cannot reclaim the VAT. It’s just the price of the car.
Scenario 2: Buying Outright for Business
The Rule: You can reclaim 100% of the VAT… but there is a catch.
To claim the full 20% back on a purchased car, you must be able to prove to HMRC that the car is used exclusively for business.
This is harder than it sounds. HMRC is very strict on this. “Business use only” means the car is:
- Never used for personal trips (even popping to the shops).
- Not used for commuting. Driving from your home to your workplace counts as a private journey.
Unless the car is a “pool car” kept at the office and used by multiple employees for work trips only, it is very difficult to claim the VAT back on a purchase.
Scenario 3: Leasing a Car for Business
The Rule: You can usually reclaim 50% of the VAT.
This is the most common route for limited companies. If you lease an electric car, HMRC assumes there will be some personal use (like commuting).
Because of this, they allow a flat 50% VAT reclaim on the monthly lease payments. You don’t need to keep a mileage log to prove the split; it’s just a standard allowance.
What About Running Costs?
Here is some better news. If your business pays for the running costs of the electric vehicle, you can usually reclaim 100% of the VAT on those expenses.
This includes:
- Maintenance and repairs.
- The cost of charging (if you charge at work or at public points paid for by the business).
- Tyres and servicing.
Summary: The Cheat Sheet
| Situation | VAT Rule |
| Buying for Personal Use | You pay 20% VAT. No reclaim. |
| Buying for Business (with personal use) | You pay 20% VAT. No reclaim. |
| Buying for Business (100% business use) | You can reclaim 100% VAT (Strict rules apply). |
| Leasing for Business | You can reclaim 50% VAT on lease payments. |
| Maintenance & Charging | You can reclaim 100% VAT (if business pays). |
Confused?
If you are thinking of getting an electric car through your limited company and want to make sure you are doing it in the most tax-efficient way possible, give us a shout.
We’ll help you crunch the numbers so you don’t get a nasty surprise from HMRC later.
