Navigating the rising costs of electric company cars

Electric vehicles (EVs) have been the backbone of UK fleet growth, driving sustainability and cost benefits across corporate fleets. However, as we move towards 2026, the financial landscape for EVs is shifting, bringing a range of cost increases that fleet managers must strategically manage.

The longstanding exemption for electric vehicles from London’s Congestion Charge ceases. The standard daily charge increases to £18, but a new Cleaner Vehicle Discount offers a 25% discount for cars (£13.50/day) and 50% for vans (£9/day). For fleet EVs frequently entering the zone, this will mean new, material monthly charges. For example, a car entering three times a week will incur charges of approximately £162 a month, or nearly £2,000 annually.

The government's generous 100% first-year capital allowance (FYA) for zero-emission vehicles and EV charge points, extended through to March 2026, will no longer apply after this date. Businesses must plan for tax reliefs shifting from immediate write-offs to more gradual depreciation, impacting cash flow and tax efficiency. This heightens the importance of scrutinising procurement strategies, such as choosing between leasing and outright purchase.

The BiK tax rate for EVs will rise from 3% to 4% on the P11D value in the 2026/27 tax year, with planned year-on-year increases reaching 9% by 2029/30. While still preferential compared to combustion alternatives, fleet managers need to factor these increases into total cost of ownership and employee salary-sacrifice schemes.

EVs will no longer be exempt from VED. A £10 first-year rate applies, with a standard £195 rate from year two onwards, plus a £425 expensive car supplement for vehicles priced over £40,000 for five years from year two.

April 2026 marks the start of standard rate and ECS for those electric vehicles moving into year 2 and will increase the overall running cost of electric vehicles.

In May 2025, the government confirmed it would be reviewing the £40k threshold but only for zero-emission vehicles. Industry bodies are pushing to raise the threshold (in line with average EV prices) and exclude factory options from the threshold, focusing only on the base list price.

EV company cars remain considerably more favourable than combustion alternatives – but the era of ultra-low tax for electric drives is gradually ending. Employers and drivers should review salary-sacrifice schemes, expected BiK liabilities, and VED exposure when selecting vehicles.

Planning ahead ensures efficient fleet budgets and avoids unexpected tax surprises.

EVs remain financially more attractive than internal combustion engine vehicles for companies, but the era of ultra-low tax benefits is ending. Fleet managers should:

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  Reassess fleet usage patterns against the new London Congestion Charge regime to manage increased daily costs effectively.
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  Review procurement strategies before March 2026 to maximise tax relief benefits.
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  Prepare for incremental benefit-in-kind tax increases impacting employee compensation packages.
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  Incorporate the new VED and expensive car supplement into fleet budgeting, especially for higher-priced EVs.
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  Regularly revisit salary sacrifice schemes and fleet policies to align with evolving tax and regulatory frameworks.

Proactive planning and strategic review will empower UK fleet managers to safeguard budgets, optimise sustainability goals, and avoid unexpected financial burdens as EV cost structures evolve.