Is electric and hybrid cars
tax deductible?

Partly. An electric car used in the business is not an ordinary expense, but a new, unused zero-emission car gets a 100% first-year allowance, so the business share of its whole cost can be deducted in the year you buy it (GOV.UK business cars). You can instead claim the mileage rate, which is the same 55p a mile for electric cars as for any other from 2026/27 (approved mileage rates).

Electric cars get the most generous treatment of any car for a sole trader: the full business share of a new one can come off profit in the year of purchase. Hybrids are treated like any other car, by their emissions. And whichever you drive, the mileage rate is an alternative that needs only a log of business miles.

Is electric and hybrid cars tax deductible?

The HMRC rule

A car bought for the business is claimed through capital allowances, on the cash basis too, unless you use simplified expenses for it. The rule comes from Capital allowances: business cars, Travel: mileage and fuel rates and allowances, Simplified expenses if you’re self-employed.

GOV.UK's capital allowances guidance sets the treatment for cars bought from April 2021: a new and unused car with CO2 emissions of 0g/km (or an electric car) gets 100% first-year allowances; a second-hand electric car gets main rate allowances; a new or second-hand car with emissions of 50g/km or less gets main rate allowances; a car over 50g/km gets special rate allowances (business cars). The main rate is 14% a year from April 2026 (18% before) and the special rate 6%. On the cash basis, cars are still relieved through capital allowances, provided the mileage rate has not been claimed on the car (BIM72035). The approved mileage rate is the same for electric and conventional cars (approved mileage rates).

When you can claim it

• A 100% first-year allowance on a new, unused electric car, for the business share.
• Main rate allowances at 14% a year on a second-hand electric car, or a hybrid at 50g/km or less.
• The business share of charging costs, when you claim actual costs.
• The mileage rate, 55p a mile for the first 10,000 business miles in 2026/27, instead of actual costs.

When you cannot

• The cost of the car as an ordinary expense, even on the cash basis.
• The Annual Investment Allowance, which excludes cars.
• Charging costs or capital allowances on a car whose business use you claim at the mileage rate.
• The private-use share of the allowances or charging costs.

What to claim instead

If the car is used for business only occasionally, or you want the simplest records, the mileage rate is often the better claim: it covers the car's depreciation, charging and running costs in one figure. For a new electric car used heavily for business, the 100% first-year allowance plus actual running costs is usually worth more. Decide before your first claim for the car, because you cannot switch away from the mileage rate for it later.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is something you buy to keep. On traditional accounting that means capital allowances, where the item qualifies, rather than an expense. On the cash basis most equipment is an ordinary expense, but cars, land and buildings never are.
4. Is there a specific rule? For electric and hybrid cars, the deciding rule is buying a car: a car bought for the business is claimed through capital allowances, on the cash basis too, unless you use simplified expenses for it.

Worked example: a new electric car at 75% business use

A physiotherapist who visits patients at home buys a new electric car for £34,000 and uses it 75% for business. The first-year allowance is £34,000, restricted to 75%, so she deducts £25,500 in the year she buys it, alongside 75% of her charging, insurance and servicing costs. When she sells the car, the proceeds bring back a balancing charge, again at 75%.

Hybrids and plug-in hybrids

A hybrid is not a zero-emission car, so it does not get the 100% first-year allowance, whatever its electric range. Its treatment depends on its official CO2 figure: 50g/km or less and it goes in the main rate pool at 14% a year, over 50g/km and it goes in the special rate pool at 6%. Many plug-in hybrids are under 50g/km; many conventional hybrids are over it. Check the figure on the registration document before you compare costs.

Charging at home

If you claim actual costs and charge at home, you need a way to separate the car's electricity from the household's: a dedicated meter, the charger's own app, or the car's charging records. Claim the business share of that electricity, not a share of the whole bill. Public and workplace charging, with receipts, is simpler to evidence. None of this matters if you use the mileage rate, which already covers charging.

Charge points at business premises

A charge point installed at business premises is plant and machinery, separate from the car. On traditional accounting it can go through capital allowances, and on the cash basis it is an ordinary expense, as long as it is used for the business. A charger at home that also serves the family car is only partly a business asset, so only the business share would count.

Leasing an electric car

If you lease rather than buy, the lease rental is a running cost, and the 15% restriction that applies to cars over 50g/km does not apply to an electric car, because its emissions are zero. The first-year allowance is for buying, not leasing. The car leasing and PCP page explains how leases and hire purchase differ.

Where it goes on your return and in MTD

For a sole trader, the allowable part goes under car, van and travel expenses (SA103F box 20 on the full self-employment pages). Under Making Tax Digital for Income Tax, it goes in the same category of your quarterly update, which is the category TapTax files it under when you record the cost.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

Most sole traders now use the cash basis, the default from the 2024/25 tax year, which counts a cost when you pay it. On traditional accounting you count it when you incur it, and equipment you keep goes through capital allowances rather than expenses.

How much an allowable cost saves

The value of a deduction is the tax it removes from your profit, not the cost itself. At the basic rate a sole trader saves 26p for every pound of allowable expense, at the higher rate 42p, and in the personal allowance taper between £100,000 and £125,140 as much as 62p. Landlords pay no Class 4 on rental profit, so they save 20p or 40p.

Records to keep

Keep the purchase, lease or finance agreement, every invoice for running costs, and a mileage log showing business and total miles, so you can support the business percentage. For a car, keep its official CO2 figure and the date you first leased or bought it, because both decide how it is treated.

From 6 April 2026, sole traders and landlords with qualifying income over £50,000 keep these records digitally and send quarterly updates under Making Tax Digital, falling to £30,000 from April 2027 and £20,000 from April 2028. The MTD requirement checker shows when it applies to you.

Common mistakes

• Claiming a hybrid as if it qualified for the 100% first-year allowance.
• Expensing an electric car in full on the cash basis without restricting for private use.
• Claiming home charging and the mileage rate for the same car.

Related expenses

This item sits in the car, van and travel expenses category, alongside buying a car, buying a van, car insurance, car leasing and PCP, car repairs and servicing, food and meals, fuel and hotels. The A to Z of expenses answers the same question for every other cost.

TapTax sorts each cost into the right category as you record it, applies the business share where you set one, and keeps the receipts with the figures, ready for your quarterly updates and final return.