I was chatting with a client recently when she said, “I’m just going to buy the car myself and keep it simple.” I get it — changing your car isn’t just about the finances. But when we sat down and looked at what “keeping it simple” actually costs, the conversation changed quickly.
Here’s the comparison we walked through.
The scenario
- A £45,000 car
- Director taking a small salary + higher rate dividends (35.75% dividend tax)
- Company paying corporation tax at 25%
- 12,000 miles a year
Getting the car in the first place
Buying a diesel car personally
To buy a £45,000 car with personal money, you need to extract that money from the company first. The most tax-efficient way for most directors is dividends, but the higher rate dividend tax is 35.75%. That means you need to declare around £70,000 in dividends to net £45,000 after tax. So, the real cost to the company’s profits is over £93,000.
Electric car through the company
The company buys the car for £45,000 and claims 100% first-year allowances. That’s a corporation tax saving of £11,250 in year one. Net cost to the business: £33,750.
That’s a difference of over £36,000 just to get the car.
Annual running costs
| Diesel — personal | Electric — company | |
| Fuel / electricity (12,000 miles) | ~£1,920 from your own pocket | ~£840 as a company expense |
| Servicing | ~£1,200 from your own pocket | ~£500 as a company expense |
| Insurance | ~£1,000 from your own pocket | ~£1,000 as a company expense |
| BIK income tax at 20% (director) | £0 | ~£360/year |
| BIK dividend band displacement (director) | £0 | ~£450/year |
| Class 1A NIC at 15% (company) | £0 | ~£270/year |
When you’re paying running costs personally, remember you’re doing so with money you’ve already paid income tax on. That £1,920 diesel bill effectively costs you closer to £3,200 of gross income as a higher-rate taxpayer.
With the electric car through the company, those costs are deductible business expenses, and electricity at work is completely exempt from benefit in kind.
Charging — where it gets interesting
Charging at work
If the company installs a charge point at the office, the equipment qualifies for 100% first-year allowances, so the full installation cost comes off the company’s profits before tax. The electricity used to charge at work is also completely free of benefit in kind. The company pays the electricity bill as a normal business expense.
Charging at home
Home charging is typically the cheapest option per mile. Electricity at domestic rates on an EV tariff works out at roughly 6–7p per mile, compared to around 16p per mile for diesel. The saving over 12,000 miles is over £1,000 a year.
The company can also pay for the installation of a home charge point. Where that charger is used solely to charge the company car, it is an allowable business expense with no benefit-in-kind for the director. If you also charge a personal vehicle on the same unit, that changes the position, so always check with your accountant before installing.
Public rapid charging
Whilst these are convenient, they are more expensive. For longer journeys, it’s unavoidable, but for day-to-day driving, most drivers find home and workplace charging covers the majority of their miles.
The Benefit in Kind on the electric car
Yes, there is a benefit-in-kind charge on a company’s electric car, this is due to the director using a company asset for personal use. In 2026/27 it’s 4% — so on a £45,000 car, the taxable benefit is £1,800.
For a director taking a salary of £12,570 and dividends, the benefit in kind has two tax effects personally. First, income tax at the basic rate on the benefit (20%): £360. Second — and this is the bit people often miss — the benefit-in-kind occupies the basic-rate band, pushing an equivalent amount of dividends from 10.75% to 35.75%. That’s an additional £450 a year in dividend tax. The company also pays Class 1A NIC at 15%: £270.
Or if you reduce your dividends to the higher rate threshold of £50,270 as you don’t need the additional income due to the business paying for the car then this is another £450.00 of tax savings.
The total cost of the benefit to the director could be £360 a year, and to the company is £270. That’s a real cost — but compare it to the £25,000 in dividend tax just to buy the diesel in the first place, and it barely moves the dial.
What does it add up to?
Based on a £45,000 car, a higher rate director, and 12,000 miles a year:
| 3-year total | |
| Dividend tax saved on purchase | £25,039 |
| Corporation tax saved via first-year allowance | £11,250 |
| Running cost advantage (net of full BIK cost, per year × 3) | ~£18,265 |
| Total tax saving over 3 years | ~£54,500 |
The £54,500 is the difference between what the combined company/director pot hands over to HMRC across both scenarios. It’s not a figure pulled from thin air — it’s the dividend tax, corporation tax, income tax and National Insurance that stack up when you fund a personal car from company profits, compared to running an electric car through the company properly.
The full BIK cost — income tax, dividend adjustment and Class 1A NIC — is already factored in. It barely moves the dial.
The short version
Buying a diesel personally feels simple because it’s familiar. But you’re buying it with money you’ve already paid tax on, running it with money you’ve already paid tax on, and getting no relief anywhere along the way.
The electric car through the company turns a large personal expense into a tax-efficient company asset — with lower fuel costs on top.
One final point is that the first year allowance on electric vehicles finishes from 1 April 2027 so if you are going to make the switch you need to be thinking ahead.
If you want to run these numbers for your own situation, get in touch.
Figures based on 2026/27 tax rates. Higher rate dividend tax: 35.75%. Corporation tax: 25%. BIK rate for electric cars: 4%. Individual circumstances vary — always take advice specific to you.
