How contract hire and finance leasing work for electric vehicles, the tax advantages for businesses, and what to look for in a business lease deal.
The main ways businesses lease vehicles, and how each one works.
The most common business lease
A contract hire electric car deal is the most straightforward way for most businesses to acquire an EV. Your business pays a fixed monthly rental for an agreed period, typically two to four years, with an agreed annual mileage limit. At the end of the lease, you return the vehicle. The leasing company owns the car throughout, so your business never takes on depreciation risk. Maintenance can be included in the monthly payment for a fixed cost per vehicle.
You take on residual value risk
Similar to contract hire in that you make monthly payments over a fixed term. The difference is that at the end of the lease, the vehicle is sold and your business receives the majority of the sale proceeds (known as a rental rebate). The vehicle appears on your balance sheet as an asset, which some businesses prefer for accounting purposes.
Lower monthly payments, balloon at end
Personal Contract Purchase adapted for business use. Monthly payments are lower because a large balloon payment (the guaranteed minimum future value) is deferred to the end. At the end of the term, you can pay the balloon to own the vehicle, return it, or part-exchange it. Less common for fleets but used for individual company cars.
| Contract Hire | Finance Lease | Business PCP | |
|---|---|---|---|
| Who owns the vehicle? | Leasing company | Leasing company (you have residual risk) | Finance company |
| Monthly cost | Fixed | Fixed | Lower (balloon deferred) |
| End of term | Return vehicle | Vehicle sold, you get rebate | Pay balloon, return, or part-exchange |
| Balance sheet | Off balance sheet | On balance sheet | Off balance sheet |
| VAT recovery (cars) | 50% on rentals | 100% on rentals | 50% on rentals |
| Best for | Predictable costs, no ownership hassle | Businesses wanting balance sheet asset | Individual company cars |
Leasing removes several of the concerns that hold businesses back from going electric.
One of the most common concerns about electric vehicles is battery degradation and how it affects long-term value. With a business car lease, this is the leasing company’s problem. You return the vehicle at the end of the term and the residual value risk sits with them. A business lease electric car arrangement transfers this risk from your books to the leasing company’s.
EV technology is improving rapidly. New models with longer ranges, faster charging, and lower prices are launching regularly. Leasing means your business can upgrade to a newer model every two to four years without being locked into a vehicle that may feel outdated.
The tax treatment of leased electric vehicles is particularly favourable. Lease rental payments are fully deductible against corporation tax for zero-emission vehicles, with no CO2-based restriction. For petrol and diesel cars with emissions above 50g/km, only 85% of the rental is deductible. Combined with the low BiK rate for drivers, leasing an EV is one of the most tax-efficient ways to provide company vehicles.
How corporation tax, VAT, and benefit-in-kind apply to leased electric vehicles.
Lease rental payments for zero-emission vehicles are 100% deductible against corporation tax. There is no CO2-based restriction for EVs. For petrol and diesel cars over 50g/km, the deduction is restricted to 85% of the rental.
Source: HMRC
On a contract hire car with private use, 50% of the VAT on lease rentals is recoverable. For vans used solely for business, 100% is recoverable. The maintenance element of any lease agreement has VAT fully recoverable.
Source: HMRC
Employees driving a leased electric company car pay BiK tax at just 4% in 2026/27. This is the same rate whether the vehicle is leased or purchased. The low rate makes business EV leasing particularly attractive as an employee benefit.
Source: HMRC
Capital allowances apply to purchased assets, not leased ones. If your business wants to claim the 100% first-year allowance for zero-emission vehicles, you need to buy rather than lease. For most SMEs, the cash flow benefit of leasing outweighs the capital allowance.
Source: HMRC
The key terms and costs to compare when evaluating business car lease deals.
Your agreed annual mileage determines the monthly cost. Underestimate and you face excess mileage charges at the end. Overestimate and you pay more than necessary each month. Be realistic based on your actual business use.
Some business car lease deals include maintenance in the monthly payment. For EVs, maintenance costs are lower than diesel, but tyre wear can be higher due to vehicle weight. Including maintenance gives a predictable monthly cost.
Most business lease deals require an initial rental of three, six, or nine months’ payment upfront. A higher initial rental reduces the monthly cost but increases the cash outlay at the start. Compare the total cost over the full term, not just the monthly figure.
Some EV lease packages include a home charger for the driver. If not, the Workplace Charging Scheme can help fund chargers at your business premises. Check whether charging infrastructure is included or needs arranging separately.
Ending a lease early usually incurs a penalty covering the remaining payments. Check the early termination terms before signing. If an employee leaves, you may need to reassign the vehicle or absorb the remaining cost.
When you return the vehicle, the leasing company inspects it against fair wear and tear standards. Damage beyond normal use, missing service history, or excess mileage result in charges. The BVRLA fair wear and tear guide is the industry standard.
Two different ways to put employees in electric vehicles, with different funding and tax implications.
With a business lease, the employer funds the vehicle and provides it to the employee as a company car. An electric car business lease is the simplest way to add EVs to a company car list. The employee pays BiK tax on the benefit. The employer pays the lease cost and claims corporation tax relief on the payments.
With salary sacrifice, the employee funds the vehicle by giving up part of their gross salary. The employer arranges the lease but the cost comes from the employee’s pay. The employee saves income tax and National Insurance on the sacrificed salary, while the employer saves employer NIC.
For employees, salary sacrifice is often cheaper because the combined income tax and NI savings exceed the BiK tax charge. For employers, salary sacrifice has a lower net cost because the employee is funding the vehicle. Some businesses offer both options to give employees flexibility.
Read our full salary sacrifice guide for a detailed worked example and setup steps.
More tools and guides for drivers and businesses going electric.
How salary sacrifice works and how to set up a scheme
OpenBenefit-in-kind rates and the company car vs allowance decision
OpenA practical guide to transitioning your business vehicles to electric
OpenAll EV tools, guides, and comparisons in one place
OpenCommon questions about leasing electric vehicles for business use.
Content produced by
Ryan is the founder of Brumble and has over a decade of experience in the UK motor finance and insurance industry. He created Brumble to make it easier for UK drivers to understand the insurance and finance world by cutting through the jargon.
Originally published: 18 June 2026 · Last updated: 18 June 2026
EV Zone