How to lease an electric vehicle through your business
Run a small business and thinking about switching to electric cars? We’ve got good news—leasing an electric vehicle through your business is easy to set up and there are sizable tax benefits to be had. That’s right, if the business leases the car, then there are some attractive tax breaks available to your company.
Let’s get to know them, shall we?
How can I lease an electric car through my company?
If you’re leasing an electric vehicle through your business, your company pays a monthly fee for the use of the car. The expense counts against your profit and loss account, and is fully allowed against corporation tax.
You can reclaim 50% of the VAT charged on the lease costs, as long as there’s some business use of the vehicle. If the car isn’t available for any private use i.e. it’s 100% used only for business, you could technically reclaim all of the VAT. This would be very difficult to prove to HMRC, though, so our advice? Reclaim only half of the VAT charged on the lease cost.
If there’s a maintenance package within your lease, you can claim 100% of the VAT back on that.
What are the different types of EV leases available?
Business Contract Hire
Business Contract Hire (BCH) is the quickest and easiest way for small businesses to switch to electric vehicles. If you pay yourself in dividends rather than a salary, or run a small fleet of company cars, BCH is a great way to get a company EV and take advantage of low company car tax rates.
BCH is a form of business car leasing whereby a vehicle lease agreement is tied to a sole trader, partnerships or a limited company as a financial asset, as opposed to being linked to an individual. Essentially it works like a long-term rental agreement. You simply rent an EV over a set number of years (usually 2-4 years) and then you return the vehicle at the end of the agreed period, hassle-free.
The pros of BCH leases for electric vehicles
- You can claim back 50% of the VAT on vehicle payments, and 100% of the VAT on maintenance costs
- There are big savings to be had thanks to super-low Benefit-in-Kind tax, exclusively for EVs, capped at just 2% until 2025
- Your monthly payments are deductible expenses, which means they can be set against your profits and save 19% of corporations tax
If you pay yourself a monthly salary, you can save up to 40% on a brand new electric car with a salary sacrifice scheme. Salary sacrifice enables an employee to exchange part of their salary for a non-cash benefit, supplied by the company instead. So in this case, it’s like cycle-to-work, but much faster.
Once an employee choses to get an EV with salary sacrifice, they'll pay a single monthly amount that covers leasing, maintenance and insurance directly from their salary, before Income Tax and National Insurance are deducted. Because of this reduction in salary, they'll pay less Income Tax and National Insurance, as well as the business’ National Insurance contributions. This is why it works out so much cheaper to get an electric vehicle through a salary sacrifice scheme. So far, so simple.
Are there any small business grants for electric vehicles?
There are several grants that may help your small business manage the initial investment of transitioning from petrol or diesel to EVs.
If you own a flat or live in a rental property, you may be eligible to apply for an EV charge point grant. The EV charge point grant provides a 75% contribution to the cost of one charge point and its installation.
If you run a small or medium-sized company from outside the home, you can apply for funding to install an electric vehicle charge point infrastructure in parking reserved for staff. This EV infrastructure grant for small businesses can be used in conjunction with the Workplace Charging Scheme, which helps fund the installation of charge points, but not the cost of charge point infrastructure.
Can I claim mileage on my leased electric car?
Yes. If the business leases your car, but you charge it at home, you can claim 5p per business mile travelled to contribute to the cost of the electricity that is being consumed.
The 5p per mile is the Advisory Fuel Rate set by the government, and is used for reimbursing employees for the cost of fuel for petrol or diesel cars–and more recently they added the 5p per mile rate for electric cars.
What are the best cars for corporate leasing?
There’s an EV for everyone, and plenty of great options that won’t break the bank. With Octopus Electric Vehicles you can choose from the top EVs on the market, with advice from our impartial EV experts if you can’t decide. We also offer EVs with speedier delivery, beating the global car supply chain issues.
Winner of the UK Car of the Year Award for 2020. Access to Tesla’s Rapid Chargers and its minimalist tablet-based controls, help make the Tesla Model 3 the world’s best-selling car.
Same but very different to the petrol Peugeot 208, the electrified and compact e-208 is crammed with tech. A worthy Car of the Year winner in 2020.
Taking inspiration from the ID.4, the Volkswagen ID.5 is a more sports-orientated SUV. It comes with the reliability and robustness you'd expect from VW.
If these models are not what you are looking for, you can browse all EVs here to find the perfect car for you.
You should now have a clear idea of why leasing an electric vehicle through your business is tax-efficient, cost-effective and, not to mention, environmentally friendly. Explore business leasing from the best range of EVs with Octopus Electric Vehicles now, or get a quote today.