The ultimate guide to a business electric car lease
What is a business electric car lease? Why lease a business electric car rather than purchase one? What’s the difference between a business lease and a personal lease? Why an electric car lease instead of hybrid, petrol, or diesel cars? Let us answer all your questions in our Ultimate Guide to Leasing an Electric Car for Business.
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Why lease a company car rather than buy one?
There are lots of reasons why many companies lease their company cars rather than purchase them outright, from lower Corporation Tax to residual value protection. First things first though, let’s cover the basics of what company car or business leasing is and what types of companies qualify.
Company car leasing works like car rental, except for a much longer period. Your company chooses company cars, agrees on monthly fees and mileage allowances, and signs a contract usually for two, three or four years. At no point does the company own the car. At the end of the contract, the car is simply handed back.
Only registered businesses qualify for a business car lease. Whether that’s as sole traders, partnerships, limited liability partnerships, limited companies or VAT registered companies.
By leasing company cars rather than purchasing them outright, your company can take advantage of the following benefits:
- Lower Corporation Tax – lease any car with CO2 emissions of 50g/km or less and the full monthly rental payments are classed as deductible expenses. Meaning these costs can be off-set against company profits, leading to lower Corporation Tax.
- VAT savings – leasing companies can reclaim VAT on every vehicle they lease, passing the savings on to customers.
- Attractive balance sheet – lease a company car and the asset or liability will not be shown on the balance sheet.
- Residual value protection – by leasing instead of buying, companies are protected from the financial risk of the vehicle losing value.
- Financial certainty – leasing enables companies to plan budgets based on fixed monthly costs, with greater protection from unexpected maintenance costs.
- Protected cash flow – leasing allows companies to keep capital in their business to enable growth.
Why choose a business electric business leasing over personal leasing?
Most leasing companies offer a choice of both Business and Personal Leasing. Or as it’s more commonly called, Business Contract Hire (BCH) or Personal Contract hire (PCH). For BCH, you’re leasing the car or fleet on behalf of your company, while PCH is just for you.
To enter into a BCH contract, you’ll need to provide details of the company, the registered number and address of the business, names of Directors and provide some bank statements.
In general, the annual mileage allowance is higher on a business lease to account for regular motorway journeys. If you cover more than the maximum mileage, the company will have to pay an excess mileage charge.
It all comes down to VAT
If you’ve ever compared the BCH with the PCH price, you’ll know that there’s quite a difference in the two monthly prices. It all comes down to VAT.
BCH prices are shown with 50% of the VAT already discounted, while the PCH contract always includes VAT, which in August 2023 was 20%.
If your company is VAT registered, you can claim back 50% of the VAT on the monthly payments – plus 100% of VAT back on the maintenance agreement.
Using a business car for personal use
Employees are free to use a company car for personal use, so long as you’re not claiming that the car is solely for business use only. Employees who use a company car for personal use, have to pay company car tax otherwise known as Benefit in Kind. More on that later.
Why lease electric vs hybrid, petrol or diesel?
Once you’ve made your decision to lease and then to take advantage of a business lease, the next choice is whether to switch to a business electric car lease. Let’s look at the benefits, starting with Benefit in Kind.
Comparing BiK rates for business electric car lease
Benefit in Kind (BiK) is a tax on employees who receive benefits or perks on top of their salary. If employees have the use of a company car for private use, they have to pay a BiK contribution, also known as company car tax.
Every car has a BIK rating based on CO2 emissions, and a P11D value which is the list price, including extras and VAT, but doesn’t include the first-year registration fee and vehicle tax.
The current company car tax rate for electric cars is just 2% fixed until April 2025, compared to up to 37% for some diesel cars. The rate is set to increase, but by just 1% each year until it reaches 5% in April 2028 – still way below the rate of petrol and diesel cars.
Electric car example:
List price: £40,000
Taxable amount: £40,000 @ 2% = £800
Higher rate taxpayer: 40% of £800 = £320 per year
Basic rate taxpayer: 20% of £800 = £160 per year
Petrol car example:
List price: £40,000
Taxable amount: £40,000 @ 31% = £12,400
Higher rate taxpayer: 40% of £12,400 = £4,960 per year
Basic rate taxpayer: 20% of £12,400 = £2480 per year
Lower Class 1A National Insurance contributions.
There are two kinds of company car tax on electric company cars. As we’ve discussed, employees pay Benefit in Kind tax, while employers pay Class 1A National Insurance Contributions.
Switch your company cars to electric and you can save on NI contributions. That’s because companies pay National Insurance on an employee’s Benefit in Kind. Quite simply, the lower the employee’s BiK payments, the lower the company’s NI contribution.
Zero Vehicle Excise Duty for a business electric car lease.
Until April 2025, owners of electric cars are exempt from Vehicle Excise Duty, commonly referred to as road tax. Drivers of petrol and diesel cars must pay an annual fee based on their CO2 emissions.
The new rules will see brand new electric cars registered on or after April 1st 2025 pay £10 in the first year, rising to £165 in subsequent years. Older EV models registered between 1 April 2017 and 31 March 2025 will pay the standard £165 fee. Low emission and zero emission cars first registered between 1st March 2001 and 30th March 2017 will move to £20 a year.
100% exempt from ULEZ and Congestion Zone charges.
Electric cars emit zero emissions which means they are 100% exempt from ULEZ and Clean Air Zone charges. The daily charge for driving in London’s Ultra Low Emissions Zone as of August 2023 is £12.50. So, if you have lots of business in London, it’s easy to see how this cost could build to around £3,500 per year for daily use.
ULEZ isn’t the only road charging scheme in London. Drivers of electric and diesel cars that emit over 75g/km of CO2 face Congestion Zone fees of £15 a day – while electric cars are again exempt from all charges until December 2025.
Other cities around the UK have introduced their own chargeable Clean Air Zones including Aberdeen, Bath, Bristol, Bradford, Glasgow and Portsmouth. Similar schemes are also in consultation in Cambridge, St Albans, Warrington and Wokingham.
Lower whole life costs than petrol or diesel cars.
When we talk about whole life costs, we take into account all the costs across the life of the vehicle.
When we’re making a comparison between an electric car and a petrol car for example, we’re comparing everything including the costs of the lease, how much it costs to charge up at the plug or fill up at the pump, plus tax, insurance and maintenance.
Take the example below. Based on an average annual 20,000 miles business lease, you could save hundreds of pounds per month thanks to cheaper costs per mile. Resulting in significant savings – especially if you’re driving long distances on business.
Then there’s maintenance and repairs. Electric cars have fewer moving parts that can become damaged or worn down, plus regenerative braking which places less strain on the brakes. Most lease companies also include a maintenance package in the cost to keep your car running at its best. So, it’s less likely you’ll have to worry about having to lose time or money getting your car fixed.
EVs also don’t require diesel particulate filters or additives such as AdBlue, both of which come at a cost. So much so, that Go Ultra Low – from the UK Government – once estimated that an electric car’s maintenance costs will be around 70% less than those of diesel or petrol cars over its lifetime.
Charging up an electric car.
How do electric company cars compare when it comes to charging up versus filling up?
The difference is calculated in pence per mile. According to Fleet News in March 2024, UK average petrol prices were 143.49p per litre while diesel was more expensive at 152.69p per litre. Resulting in pence per mile costs of around 19p for a large 2000cc vehicle.
In the same month the average home electricity costs were priced on average at 30p per kWh. Meaning a typical large-size electric car (such as a Tesla Model 3) would cost around 11.1 per mile. This cost would come down to just 5p per mile at off-peak times when electricity is cheaper.
The average rate for medium sized businesses during the same period was a comparable 29.8p per kWh. Business leasing customers who provide on-site charging at their premises may also benefit from tax deductions, and some local authorities may incentivise this further – saving electric company car drivers even more money.
Average cost per mile
| Petrol | Diesel | Electric |
|---|---|---|
| 19p | 19p | 5p per mile (off-peak) |
When it comes to rapid public chargers, prices are generally more expensive at up to 25.7p per mile, but conversely, some also enable drivers to top-up for free.
Claiming mileage back with electric business leasing.
AER stands for Advisory Electricity Rate and is set by government. It applies when a company reimburses an employee for business travel in a company car, or where an employee is required to repay the company for personal travel in a company car.
On September 1st 2023, the advisory rate for fully electric cars was 10 pence per mile. As the price of electricity fluctuates, so do the recommended rates. To keep up to date and check the value of previous rates, take a look at the Gov.co.uk website.
Of course, companies are not constrained by the advisory rate. Should they choose to, they can pay more than 10 pence per mile, by providing the required evidence to HMRC.
Let’s sum up the main benefits of a business electric car lease.
Lease an electric car and the full monthly rental payments are classed as deductible expenses. Meaning these costs can be off-set against company profits for lower Corporation Tax.
If your company is VAT registered, you can claim back 50% of the VAT on the monthly payments – plus 100% of VAT back on the maintenance agreement.
Your drivers will benefit from just 2% Benefit in Kind (BiK) rates until 2025, compared with up to 37% for some diesel cars.
Take advantage of a lower upfront cost, typically equal to a few months of the monthly fee with a business electric car lease.
Electric cars have lower running costs than petrol or diesel cars, plus they are exempt from Vehicle Excise Duty (road tax) until at least 2025. Check out how much an electric car could save you here.
By leasing, costs are factored into your monthly payments, meaning you’re protected from any adverse depreciation.
Budget your monthly outgoings and enjoy the predictability of fixed monthly costs.
Electric cars produce zero emissions which is not only good for the environment, but good for the pocket too, since they are exempt from costly ULEZ and Clean Air Zone charges.
You won’t have to worry about maintenance, servicing or costly mechanical repair bills with a business electric car lease.
Good EV leasing companies deliver more than just electric cars – you benefit from more buying power and bigger discounts to greater stock availability and more choice.
A company car is still one of the most attractive employee benefits that could help to attract and retain staff.
Electric cars produce zero emissions at the tailpipe, helping your company meet its sustainability targets.
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