If your company is thinking about buying a new electric car, the tax position changes from April 2027. The 100% first-year allowance that lets a business write off the full cost of a new, zero-emission car against its profits in the year of purchase is due to end. After that date the same car will only attract writing-down allowances, which spread the relief over many years instead.
The Autumn Budget 2026 confirmed there is no further extension, so the allowance expires as planned. This guide explains exactly what is ending, when, what replaces it, and what a new electric car really costs in tax terms before and after the deadline, with a worked example. Every figure is taken from live GOV.UK guidance this week.
What is happening to the electric car first-year allowance?
From April 2027 the 100% first-year allowance for new and unused zero-emission cars is being withdrawn. Until then, a company buying a brand-new electric car can deduct the entire cost from its taxable profits in the year of purchase. After the deadline, the cost goes into the main capital allowances pool and is relieved gradually instead.
A first-year allowance is a form of capital allowance that gives 100% tax relief up front rather than spreading it over time. GOV.UK confirms that you can claim 100% first-year allowances on "electric cars and cars with zero CO2 emissions" only "if you buy it before April 2027" (GOV.UK: first year allowances). The same deadline applies to electric vehicle charging point equipment.
When exactly does the 100% allowance end?
The 100% first-year allowance ends for expenditure incurred on or after 1 April 2027 for companies paying corporation tax, and on or after 6 April 2027 for sole traders and partnerships paying income tax. In other words, the purchase must be completed before those dates to secure the full up-front deduction.
This end date was set at the Autumn Budget 2025, which extended the allowance by a final 12 months, and the Autumn Budget 2026 confirmed it will not be extended again. The timing hinges on when the expenditure is incurred, which is normally when you become legally obliged to pay, not when the car is delivered or when you place a deposit. If you are ordering a car close to the deadline, confirm the contract date with your accountant.
What replaces the allowance after April 2027?
After April 2027, a new electric car no longer gets an up-front deduction. Instead it enters the main capital allowances pool and attracts a writing-down allowance of 14% a year on a reducing-balance basis. Cars are excluded from both the Annual Investment Allowance and the 40% main-rate first-year allowance, so writing-down allowances are the only route.
That distinction matters. The writing-down allowance spreads relief across many years, so the cash-flow benefit in year one is far smaller than the 100% allowance delivers. GOV.UK confirms that cars cannot use the Annual Investment Allowance, and sets out how business cars are pooled (GOV.UK: business cars). The table below compares the two positions for a new zero-emission car.
| Feature | Buy before April 2027 | Buy from April 2027 |
|---|---|---|
| Allowance available | 100% first-year allowance | Main-pool writing-down allowance |
| Relief in year one | Full cost of the car | 14% of the cost |
| How relief is given | All up front | Spread over many years, reducing balance |
| Annual Investment Allowance | Not needed (cars excluded anyway) | Still not available for cars |
| Total relief over the car's life | Full cost | Full cost, but much slower |
How much tax could the change cost?
The change does not reduce the total relief you get, it delays it. A company still writes off the whole cost eventually, but under writing-down allowances the benefit arrives slowly over many years rather than all in year one. For a business that funds vehicles from cash flow, that timing difference is the real cost.
Here is a worked example. A company paying corporation tax at the 25% main rate buys a new electric car for £40,000:
- Bought before April 2027: the 100% first-year allowance gives a £40,000 deduction in year one, saving about £10,000 in corporation tax that year.
- Bought from April 2027: the car enters the main pool at 14%. Year one relief is £5,600 (14% of £40,000), saving about £1,400 in tax. Year two gives £4,816, and so on, tailing off over a decade.
So the headline cost is not lost relief, it is roughly £8,600 of tax deferred out of year one on this example. The small-profits rate of 19% applies to companies with profits under £50,000, which changes the figures (GOV.UK: corporation tax rates). Model your own numbers before committing to an order date.
Do electric vans and charge points change too?
Electric vans are treated differently from cars. A van is plant and machinery rather than a car for capital allowances, so it can qualify for the Annual Investment Allowance, which still gives up to £1 million of 100% relief a year. Charge point equipment, by contrast, shares the same April 2027 first-year-allowance deadline as electric cars.
If you are weighing up how to provide a vehicle at all, the ownership route also drives the benefit-in-kind position. Our guides to the electric company car benefit-in-kind rules and the company car versus mileage decision cover the running-cost side, which sits alongside the purchase relief explained here.
What should companies do before April 2027?
If a new electric car is on your plan for the next 18 months, the main lever is timing. Securing the purchase before the deadline locks in the full up-front deduction, but only if the expenditure is genuinely incurred in time and the decision makes commercial sense on its own merits. Tax tail should not wag the business dog.
- Decide whether a new electric car is on your plan before April 2027, and if so, confirm the order and contract dates with your accountant.
- Check whether the company or a sole trader is buying, as the corporation tax and income tax deadlines differ by a few days.
- Remember the benefit-in-kind cost of an electric company car still applies whichever allowance you use.
- If the timing does not work, plan around writing-down allowances and the slower relief profile instead.
Does leasing avoid the change?
Leasing is unaffected by the first-year allowance deadline because you are not buying the car, so there is no capital expenditure to claim. Instead, lease rentals are usually deducted as a business expense, subject to a 15% disallowance for cars with CO2 emissions above a threshold. For a zero-emission car there is normally no disallowance, which keeps electric leasing attractive after April 2027.
Get your capital allowances reviewed
The difference between a year-one deduction and a 14% drip is worth real money on a £40,000 car, so the order date matters. Zmartly is a CIMA-regulated firm, and our qualified accountants (ACMA, CGMA, ACCA, FCCA) advise limited companies on capital allowances and vehicle decisions every week through our corporation tax service. Book a free call with Zmartly and we will model the before-and-after for your own purchase.
Frequently asked questions
When does the 100% first-year allowance on electric cars end?
The 100% first-year allowance on new and unused zero-emission cars ends for expenditure incurred on or after 1 April 2027 for corporation tax, and 6 April 2027 for income tax. GOV.UK confirms you can only claim it if you buy the car before April 2027. The same deadline applies to electric vehicle charge point equipment.
What allowance applies to an electric car bought after April 2027?
An electric car bought from April 2027 goes into the main capital allowances pool and attracts a writing-down allowance of 14% a year on a reducing-balance basis. Cars cannot use the Annual Investment Allowance or the 40% main-rate first-year allowance, so relief is spread over many years rather than given all up front.
Do electric vans lose the 100% allowance too?
No. Electric vans are plant and machinery, not cars, for capital allowances, so they can still claim the Annual Investment Allowance, which gives up to £1 million of 100% relief a year. The April 2027 first-year-allowance deadline applies to zero-emission cars and to electric vehicle charge point equipment, not to vans.
Is the total tax relief lower after April 2027?
No, the total relief is the same, but the timing changes. Under the 100% allowance you deduct the full cost in year one. Under writing-down allowances you still deduct the whole cost eventually, but gradually at 14% a year on a reducing balance. The real impact is on cash flow, not the overall amount of relief.
