What UK Small Businesses Really Need to Know
There’s been a lot of chatter about electric cars, new taxes and whether the government has “gone off” EVs. If you’re running a small business, that noise isn’t very helpful.
You just want to know, in plain English:
- What’s actually changing?
- When does it kick in?
- What does it mean for our costs and our tax?
This guide walks through what’s been announced so far, in normal language, and then looks at how you might respond in your business.
- What’s changing for electric cars?
A new mileage-based tax from April 2028
From the 2028/29 tax year, fully electric cars will be charged 3 pence per mile, and plug-in hybrids 1.5 pence per mile.
Think of it as a small extra cost built into every mile driven – broadly similar in spirit to how fuel duty is built into the cost of petrol and diesel. It doesn’t stop you using an EV, but it does mean the “running cost” number you have in your head needs to be updated.
Road tax (VED) from April 2025
From April 2025, electric cars are no longer exempt from Vehicle Excise Duty (VED) – road tax. Previously, fully electric cars didn’t pay VED at all. From April 2025 that exemption disappears, and electric cars are brought into the normal road-tax system alongside petrol and diesel vehicles.
So if you’ve been used to “no road tax” on an EV, that particular perk is coming to an end.
Has the government “gone off” EVs?
Not really. The broader policy direction still supports EVs as part of the future vehicle mix, with continued focus on charging infrastructure and cleaner transport in general. What’s really happening is that the tax system is being adjusted so EVs aren’t sitting quite as far outside the normal rules as they did in the early days.
- How the HMRC mileage rules fit in
For business owners, the familiar HMRC mileage rules still apply and they’re actually quite straightforward once you line them up.
Staff using their own car (including EVs)
When an employee uses their own car for business, the standard HMRC mileage rates are the same whether that car runs on petrol, diesel or electricity:
- 45p per mile for the first 10,000 business miles in a tax year
- 25p per mile for business miles above that
There isn’t a special HMRC “EV mileage rate” under this scheme, an electric car is simply treated as “a car”.
Company-owned EVs
If the car belongs to the business (a company car), you don’t use those 45p/25p rates in the same way.
Instead, HMRC expects you to work with an advisory electricity rate for reimbursing the cost of electricity used on business journeys. Recent guidance makes a distinction between charging at home and charging in public, and the basic idea is:
- What you reimburse should be linked to the electricity actually used for business miles; and
- It should be structured so the reimbursement is treated correctly for tax and doesn’t accidentally turn into a taxable benefit.
- So where does this leave small businesses?
For a small business that already uses EVs, or is thinking of switching, the short answer is:
EVs are no longer “tax-free”, but they can still make sense.
You need to factor in:
- Road tax (VED) from April 2025; and
- A mileage-based tax from April 2028
At the same time, the rules for reimbursing business use are clear and workable, as long as you stick to the official mileage and electricity frameworks.
If staff use their own EVs
If your staff use their own electric cars for business journeys, you can still reimburse them at the usual 45p/25p rates:
- It keeps things simple
- Payments sit within the tax-free limits
- Staff don’t lose out just because they drive an electric car
If you provide a company EV
If you provide a company EV and reimburse charging:
- You follow the advisory electricity rate; and
- You follow the guidance around home versus public charging.
Again, the aim is to keep everything transparent and on the right side of HMRC.
- Making the decision: EV vs petrol or diesel
Before replacing or adding vehicles, it now makes sense to sit down and do a proper “total cost over time” comparison rather than relying on old assumptions.
For an EV, that means looking at:
- Purchase or lease cost
- Road tax from 2025
- Electricity costs at home, at work and on public chargers
- The mileage-based tax from 2028
- Maintenance and insurance
- Any reimbursements you expect to pay staff
Then you put that next to a petrol or diesel vehicle over the same period and include:
- Fuel and fuel duty
- Road tax
- Maintenance and insurance
- Any mileage reimbursements
Once you see the numbers side by side over three to five years, the decision is usually much clearer and much less emotional.
- Why charging arrangements and mileage records really matter
How and where you charge
How and where the car is charged can make a big difference to your numbers:
- Charging at home or at your premises often works out cheaper than heavy reliance on public rapid chargers
- Combined with accurate mileage logs and the correct HMRC rates, you get a realistic cost per mile, even with the new taxes built in
For many businesses with modest or predictable mileage, that could still make an EV a very sensible choice.
Record-keeping goes up a gear
Because:
- There is a tax based on miles driven, and
- The reimbursement system is based on business mileage,
…you really do need clean records.
It’s worth making sure every business journey is logged with:
- Date
- Purpose
- Mileage
…and that business and private use are clearly separated, especially where a vehicle is used for both.
Good records:
- Make budgeting easier
- Support your decisions if anyone asks questions later
- Help you avoid awkward disputes over expenses
- Keeping your team on the same page
It also helps to be clear with your team about how you handle EV costs.
If you reimburse mileage or charging, set out in writing:
- Whether you’re using the standard mileage rates for personally-owned cars
- Or the electricity rate for company EVs
- How you treat home charging versus public charging
A short, plain-English policy can:
- Avoid confusion
- Prevent arguments
- Give staff confidence that they’re being treated fairly, whatever they drive
- The adviser’s view: treat EVs as a normal business decision
In many owner-managed businesses you’ll see a mix of arrangements:
- Directors using their own cars
- A couple of vans
- Maybe one or two company cars
In that world, the change in EV taxation doesn’t mean “never touch an electric car again.”
It means:
- Don’t choose an EV solely because it used to have no road tax; and
- Don’t reject an EV just because that particular advantage is going
Instead, you treat it like any other business decision. You look at:
- Total cost of ownership
- Your mileage patterns
- Your charging options
- The tax rules you’ll be working under
…and then you decide what genuinely makes sense for your business.
For firms with lower or occasional mileage, electric cars may still offer good value: simpler maintenance, more stable energy costs and a tidy fit with the existing mileage and reimbursement rules.
For higher-mileage operations, especially where most charging is done in public, the return of road tax and the new mileage charge simply make it more important to run the numbers carefully and go in with your eyes open.
- The bottom line for small businesses
The 2025 Budget doesn’t kill the case for electric cars in small businesses but it does change the ground rules:
- Electric cars will pay road tax from April 2025
- Electric and plug-in hybrid cars will pay a mileage-based tax from April 2028
They’re no longer the “free tax” option they once were, but they are still a realistic option if you plan properly.
If you:
- Take the time to understand your real costs
- Keep decent mileage and charging records
- Use the official HMRC mileage and reimbursement rates
…EVs can still be a sensible, controllable part of your transport mix.
If you ignore the changes, you’re more likely to run into surprises later, whether that’s in tax, cash flow or compliance.
Please see another An Accounting Gem blog: https://www.aag-accountants.co.uk/when-work-goes-quiet-10-cost-free-marketing-ideas-for-small-trades-businesses/
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