Electric car business lease: how a small business can get an EV

Want an electric car for your business but not sure which route to take? There are three main options. You can buy the car, lease it through the business, or set up salary sacrifice.

Each one is taxed differently and suits a different kind of business. So let’s get into it.

• A small business can get an electric car by buying it, leasing it through the business, or offering salary sacrifice to staff on the payroll.
• A business lease, or business contract hire, means fixed monthly rentals for two to four years. Then you hand the car back.
• VAT-registered businesses can usually reclaim 50% of the VAT on lease rentals, and electric cars avoid the corporation tax restriction on lease costs.
• Salary sacrifice works for people paid through PAYE, including directors who take a salary, if it’s high enough to meet the threshold for salary sacrifice.
• You’ll pay 4% Benefit-in-Kind (BiK) on electric company cars in the 2026/27 tax year.

1. Buying means the business owns the car. 
2. A business lease means the business rents one for a fixed term. 
3. Salary sacrifice means an employee gives up part of their pre-tax salary in exchange for the car, so it's paid for before Income Tax and National Insurance come out.

Here's how they compare.

The right one depends on who's driving, how they're paid, and who you want to pay for the car. The rest of this article takes each route in turn.

A business lease, also called business contract hire, is where your business rents a car for a fixed term, pays a fixed monthly amount and hands the car back at the end. The leasing company owns the car. So it carries the risk on what the car is worth when you return it, not you.

It works a lot like a personal lease. The difference is who signs the agreement. With a business lease, the ‘person’ signing is the business, so the tax treatment is determined by that.

We don't offer business leasing at Octopus EV, it's still a common way for small firms to run a company car, so it's worth knowing how it works.

1. Choose the car, the contract length (usually two to four years) and how many miles a year you'll drive.
2. Pay an upfront rental. This is usually a few months' worth of payments, and the amount varies by provider.
3. Pay a fixed monthly rental for the rest of the term.
4. Hand the car back at the end.

Fixed payments make budgeting simpler. You also don't have to worry about what the car's worth in three years or how to sell it.

Limited companies, limited liability partnerships, partnerships and sole traders can usually apply. The leasing company will run credit checks, and some ask for a minimum trading history, so a brand new business may find it harder.

You don't have to be VAT registered to lease a car through your business. It just affects how much VAT you can claim back.

Most leases set an annual mileage limit, and you'll pay an excess mileage charge if you go over it. You may also be charged for damage beyond fair wear and tear when the car goes back. The BVRLA, the leasing industry's trade body, sets out what most leasing companies expect.

Ending a lease early usually means an early termination charge too. So check the terms before you sign.

Electric cars are taxed at a lower rate than petrol and diesel company cars in several ways. Here's how it works on a business lease.

If your business is VAT registered and the car is available for private use, you can usually reclaim 50% of the VAT on the monthly rental. HMRC treats the other 50% as covering private miles. You can reclaim it all only in narrow cases, set out in HMRC's motoring guidance, such as a car used mainly as a taxi or for driving lessons.

Maintenance is different. If it's shown separately on the invoice, you can usually reclaim all of the VAT on it.

Based on HMRC VAT Notice 700/64, checked 1st October 2026. For VAT-registered businesses only. Your accountant can confirm how it applies to you.

Lease rentals are usually an allowable business expense, so they reduce your taxable profits. For cars with CO2 emissions over 50g/km, HMRC disallows 15% of the rental. Electric cars have zero tailpipe emissions, so they're under that line and the full rental usually counts.

Whoever drives the car, director or employee, pays BiK if it's available for private use. For electric cars, the rate is 4% of the car's list price in the 2026/27 tax year. It rises each year to 9% in the 2029/30 tax year, which is still well below petrol and diesel cars. Our guide to BiK on electric cars has the full detail.

The business pays Class 1A National Insurance at 15% on the value of the benefit. Because an electric car's BiK value is low, so is this bill.

For example, take a car with a £40,000 list price in the 2026/27 tax year. The benefit is 4% of £40,000, which is £1,600. Class 1A at 15% on that comes to £240 for the year. For advice on your own situation, speak to a qualified accountant or tax adviser.

Yes, as long as the people using it are employees on your payroll. Directors who take a salary through PAYE count too.

Salary sacrifice is an arrangement where an employee gives up part of their pre-tax salary in exchange for a non-cash benefit, in this case an electric car. Because the payment comes out before Income Tax and National Insurance, the car costs them less than paying for it from take-home pay. They still pay BiK on the car.

It can still work for very small teams. At Octopus EV, our scheme has no minimum team size, so just one person on the payroll is enough to get started. Just bear in mind that the person’s salary needs to be above £31,000 as a rule of thumb, because legally a salary sacrifice agreement can’t take your gross pay below the National Minimum Wage.

The business pays less employer National Insurance, because the salary it's paying is lower. At the 15% employer rate, every £1,000 of salary sacrificed saves the business £150, before the Class 1A on the car's BiK value. The HMRC guidance for employers covers how it works in payroll, and we’ve also set out how your business can make money through salary sacrifice through these savings.

• The pay floor. Sacrificed pay can't take anyone below the National Minimum Wage. For workers aged 21 and over, that's £12.71 an hour. Our rule of thumb is that your salary needs to be above £31,000 to be eligible for salary sacrifice. 
• Salary-linked entitlements. A lower pre-tax salary can affect pension contributions, statutory pay such as maternity pay, and mortgage affordability checks.
• Sole traders. There's no payroll for the owner to sacrifice from, so salary sacrifice won't work for them. It can still work for any employees they have.
• Directors paid mainly in dividends. Less salary means less to sacrifice, so they may not be eligible, or may benefit less from the tax savings.

It depends on who's driving and how they're paid. A few questions help:

• Is the car for one person or the whole team? A pool car that several people share may be better suited to a business lease.
• Is the driver on your payroll? If they're a partner, LLP member or sole trader, salary sacrifice isn't usually an option.
• Who pays for the car? With a business lease, the business pays. With salary sacrifice, the employee pays from their pre-tax salary.
• Is the car a perk or a tool? If the job needs it, a business lease keeps it with the business. If it's a benefit, salary sacrifice lets each person pick their own car, which can be used for both business and your personal needs.

Plenty of businesses use both. A business lease covers the cars the job needs, and salary sacrifice covers everyone else who'd like an electric car. If you also pay car allowances, our guide to car allowance vs salary sacrifice explains how they fit together.

Yes. Most of the help goes towards charging rather than the car itself. Our EV grants guide covers who's eligible and how to apply, but here’s the short version.

Checked against GOV.UK on 1st October 2026. Grants can change or close, so check the latest rules before you apply.

Yes. HMRC sets advisory electricity rates for fully electric company cars, salary sacrifice cars included. From 1st September 2026, they're 7p a mile if the car is charged at home and 15p a mile on public chargers. If you repay business miles at or below these rates, there's no tax or National Insurance to pay on it.

HMRC reviews the rates every quarter. If the car's charged in both places, you can split the miles fairly between the two rates. And if you can show your electricity costs more per mile, you can pay a higher rate.

Start with what the car has to do, not the spec sheet. Pick for your longest regular trip, not the once-a-year drive to Cornwall.

• How far do you drive in a day? Most local and commuting trips don't need a big battery. But if you and your team do longer distances frequently, you’ll want to look for an EV with a longer range. 
• Where will you charge? Charging at home or at work is usually the cheapest option. Charge at home for as little as 2p per mile, with an exclusive EV charging tariff from Octopus Energy, compared with 18p per mile for petrol.
• What's the total cost? Make sure you take into account insurance, maintenance and road tax. 
• What do you need to carry? Kit, samples or a car full of colleagues? Make sure the car suits what you need to do the job.

We don't offer business leasing from Octopus EV, but iIf you pay your team through PAYE, salary sacrifice may be a good option.

Our salary sacrifice scheme is free for employers to set up and run. Your employees choose an electric car, and one monthly payment from their pre-tax salary covers the car, servicing, maintenance, tyres, breakdown cover from the RAC and road tax. Insurance is included as standard, and there's no deposit to pay. You manage the scheme through an online dashboard.

Drivers can also choose a charging offer: £400 off a home charger, £400 of home charging credit, or £400 of public charging credit with Electroverse. And they get access to Intelligent Octopus Go - EV Saver, Octopus Energy's home charging tariff, with a discounted rate that's exclusive to Octopus EV drivers.

What each driver pays depends on their salary, tax band and the car they choose.

No, we don't offer business leasing any more. But if the people who'd drive the car are paid through PAYE, salary sacrifice may be a good alternative. Employees pay for the car from their pre-tax salary, and the business pays less employer National Insurance. Our scheme is free for employers to set up.

Usually, yes. Most leasing companies offer business contract hire to sole traders as well as limited companies and partnerships, subject to credit checks. Some ask for a minimum trading history. A sole trader can't use salary sacrifice for their own car, though, because there's no salary to sacrifice.

Yes, if they're paid a salary through PAYE. The car comes out of their pre-tax salary like any other employee's, and they pay Benefit-in-Kind tax on it. Directors who take most of their income as dividends have less salary to sacrifice, so it may suit them less well.

No. Any business that passes the leasing company's checks can usually take out a business lease. Being VAT registered only affects how much VAT you can claim back. If you're not registered, the VAT is simply part of what you pay each month.

Not with business contract hire. You hand the car back at the end, and the leasing company deals with selling it. If you want the option to buy, you'd need a different agreement, such as contract purchase, where you can pay a final lump sum to keep the car.

Usually, yes, but check before you sign. Most business contract hire deals include road tax for the length of the lease. Electric cars have paid road tax since April 2025, and a 3p per mile charge starts in April 2028, so ask your provider how they'll handle it.