Business Contract Hire for electric cars: what companies need to know
Business Contract Hire lets a company lease a vehicle for a fixed term, usually two to four years, with agreed mileage. The vehicle stays off the balance sheet, and monthly rentals are treated as a business operating expense.
VAT recovery
VAT-registered businesses can reclaim 50% of the VAT on the monthly lease rental if the car is available for private use. If the vehicle is used only for business purposes, 100% of the VAT can be reclaimed — though this is difficult to evidence in practice. Maintenance rentals attract 100% VAT recovery regardless.
Capital allowances for EVs
For vehicles purchased outright (rather than leased), zero-emission cars qualify for a 100% First Year Allowance (FYA), allowing the full cost to be deducted from taxable profits in the year of purchase. This is not available on lease agreements, but it makes outright purchase of an EV very tax-efficient for profitable businesses.
Employee BiK
Where an employee also has private use of a company-leased EV, they pay BiK tax on the benefit. With EV rates at 3–5%, the tax is modest and far lower than for an equivalent petrol car. Many businesses include this as part of a total reward package.
Choosing a contract length
Two-year contracts offer more flexibility and exposure to improving technology. Three-year contracts usually attract lower monthly payments. Given the pace of EV development — particularly battery range — many fleet managers prefer two or three years rather than four.
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