Leasing an electric car through your business: VAT, Corporation Tax and BIK in 2026

Leasing an electric car through your business is one of the most tax-efficient ways to run a car in the UK in 2026. The rentals are fully deductible for Corporation Tax (the 15 % restriction only hits cars above 50 g/km), the company recovers 50 % of the VAT on the rental and all the VAT on a separately invoiced maintenance element, and the driver pays benefit-in-kind tax on just 4 % of the list price.

This guide is for business owners, directors of limited companies and finance teams. It explains each tax line step by step, gives a monthly worked example in pounds, compares contract hire with buying and hire purchase, covers salary sacrifice leasing and the lease clauses that cost money at the end. It closes on the one cost no lease includes: the electricity the car uses at home, which Voltaback measures and reimburses without hardware.

In short (checked on GOV.UK on 3 November 2026):

Corporation Tax: are lease rentals deductible?

Yes. Rentals paid under a car lease (contract hire, or any hire where the company does not own the car) are a revenue expense, deducted from profits in the period they relate to.

The 15 % lease rental restriction, and why EVs escape it

For cars hired from April 2009, the deduction is restricted only when the car's CO2 emissions exceed a threshold. For leases starting from 1 April 2021, that threshold is 50 g/km: above it, 15 % of the hire charge is disallowed. At or below it, the rental is fully deductible (HMRC BIM47714).

A fully electric car emits 0 g/km, so 100 % of its rental is deductible. So is most of a plug-in hybrid's rental, as long as its official CO2 stays at or below 50 g/km.

What exactly is restricted, step by step

The restriction applies to the hire charge, including any irrecoverable VAT on it. It does not apply to separately identified services such as maintenance, which remain fully deductible. In practice:

1. Take the monthly rental invoice.
2. Separate the finance (car hire) element from the maintenance element if the lessor itemises it.
3. Add the irrecoverable VAT on each element.
4. For a car above 50 g/km, disallow 15 % of the hire element including its irrecoverable VAT. For an EV, disallow nothing.

What else the company deducts

Insurance, servicing not included in the lease, tyres, road tax and the electricity the company pays for (at work, on a charge card or reimbursed at home) are ordinary deductible running costs. A one-off initial rental (often three to six months upfront) is spread over the lease term in the accounts and deducted accordingly, not all in the first month.

One accounting change for 2026: for accounting periods beginning on or after 1 January 2026, the revised FRS 102 brings most leases onto the balance sheet for UK companies using that standard, as IFRS 16 already did for larger groups. The tax deduction still follows the rentals in substance, but your accountant will want to check how the new figures map to the tax computation.

VAT on a business EV lease: what you really get back

The VAT rules for leased cars are the same whatever the fuel (HMRC VAT Notice 700/64):

Ask the lessor to itemise maintenance. If it is bundled into one rental figure, the 50 % block applies to the whole amount. HMRC has agreed guidelines with the leasing industry on how leasing and maintenance must be presented to count as separate supplies.

The "no private use" route for 100 % recovery is narrow. A car kept at the employee's home overnight is normally considered available for private use, even if a policy forbids it. It is mostly relevant to pool cars kept at the business premises.

And the electricity? VAT on charging at the company's premises or on public chargers the company pays for is recoverable for the business share of use. VAT on electricity the employee buys at home is not recoverable by the employer, because the supply is made to the employee. Domestic electricity in Great Britain is zero-rated from 1 October 2026 to 31 March 2027 in any case (GOV.UK).

Benefit in kind on a leased EV: based on the list price, not the rental

The driver's company car tax does not depend on what the company pays each month. It is the car's list price (including options, less any capital contribution by the employee up to £5,000) multiplied by the appropriate percentage:

• 4 % for a zero-emission car in 2026/27;
• 5 % in 2027/28, 7 % in 2028/29, 9 % in 2029/30.

Sources: GOV.UK CO2 tables of rates, GOV.UK appropriate percentage 2028 to 2030.

So a leased £45,000 EV creates a taxable benefit of £1,800 in 2026/27, whether the rental is £400 or £700 a month. The employer pays Class 1A National Insurance at 15 % on it: £270 a year (GOV.UK employer rates). A petrol car of the same price at 130 g/km (32 %) would create a £14,400 benefit and £2,160 of Class 1A.

Electricity paid by the employer adds nothing to the BIK: electricity is not "fuel", so the car fuel benefit charge does not apply (HMRC EIM23900). Our guide to electric car BIK rates gives the calculation per tax band and per year.

Worked example: a £550 a month contract hire on a £45,000 EV

Assumptions: a VAT-registered company paying Corporation Tax at 25 %, a £45,000 list price EV on a 4-year contract hire, £550 a month excluding VAT, of which £500 finance and £50 maintenance, itemised separately. The car is available for private use.

Over a year, the net cost is £5,400, plus the employer's Class 1A of £270.

The same rental on a petrol car above 50 g/km. The hire element including its irrecoverable VAT is £550; 15 % of it (£82.50) is disallowed. Deductible cost: £517.50 a month, tax relief £129.38 instead of £150. The petrol car costs about £250 a year more in Corporation Tax for the same rental, and £1,890 more in Class 1A. Our calculation from BIM47714 and VAT Notice 700/64.

The same car leased personally by a director. If the director of a limited company leases the EV personally, they pay £660 a month including VAT out of taxed income. As a higher-rate taxpayer (40 % tax and 2 % NI), that needs about £1,140 of gross salary a month, plus 15 % employer NI on top, against £450 of net cost through the company plus £60 a month of BIK tax (40 % of £1,800 ÷ 12). For an EV, leasing through the company is almost always cheaper. The comparison is closer for a petrol car with a 30 %+ BIK.

Fleet case: 20 leased EVs against 20 leased petrol cars

Scale the same example to a fleet of 20 cars, all at £45,000 list price and £550 a month excluding VAT (£500 finance, £50 maintenance), one year, Corporation Tax at 25 %. Class 1A National Insurance is itself a deductible expense, so it is shown after tax relief.

Our calculation from BIM47714, VAT Notice 700/64, the GOV.UK CO2 tables and employer rates.

With identical rentals, the electric fleet costs the company about £33,300 a year less, and its drivers pay about £100,800 less tax between them. In practice EV rentals are often a little higher than for an equivalent petrol car; the table shows how much room the tax gives before the petrol car becomes cheaper. On these figures, an EV rental could be about £165 a month higher per car (excluding VAT) before the advantage disappears, before even counting energy.

Energy widens the gap. At 12,000 miles a year, the EV's home electricity costs about £1,010 at the price cap rate and can be repaid tax-free. Paying a petrol driver's private fuel triggers the car fuel benefit charge, so most employers pay business fuel only and leave the driver to buy the rest.

Lease, hire purchase or buy: the tax trade-off

Sources: GOV.UK FYA for zero-emission cars, GOV.UK business cars.

When buying wins. A company that buys a new £45,000 EV before 31 March 2027 deducts the full £45,000 in year one, saving £11,250 of Corporation Tax at 25 %. That is a timing benefit: when the car is sold, the proceeds create a balancing charge. Buying suits companies with strong profits now, long holding periods and high mileage. Our article on capital allowances on electric cars details the pools and disposals.

When leasing wins. The residual value of used EVs has moved fast in recent years, and the average three-year residual is around 60 % of the new price, according to Cox Automotive. On a £45,000 car, every 10 points of residual is £4,500. A lease hands that risk to the lessor, keeps capital in the business and avoids remarketing. After 31 March 2027, when the 100 % allowance ends, purchased EVs fall into the 14 % main pool and leasing gains a further edge.

For a full comparison of the options on one fleet, our article on electric company car tax benefits puts the six tax levers side by side.

Salary sacrifice leasing: the employer's version

In a salary sacrifice car scheme, the employer leases the car and the employee gives up part of their gross salary in exchange for the use of the car, usually with insurance, maintenance and breakdown cover included.

The tax works because cars emitting 75 g/km or less are excluded from the optional remuneration (OpRA) rules: the employee is taxed on the low BIK, not on the salary given up (HMRC EIM44060). For an EV:

• the employee saves Income Tax and National Insurance on the salary sacrificed, and pays tax only on the 4 % BIK;
• the employer saves 15 % National Insurance on the salary sacrificed and pays Class 1A on the BIK;
• cash pay must stay at or above the National Minimum Wage (GOV.UK, salary sacrifice).

On a £550 a month sacrifice for a £45,000 EV, the employer's net NI saving is about £720 a year, and a basic-rate employee saves about £1,488 a year after BIK tax.

Three points to settle before launch:

• Early termination: what happens if the employee resigns, is dismissed, goes on long-term sick leave or maternity leave. Most schemes include early termination insurance; check what it covers.
• Lease liability: the company is the lessee, so the lease sits on its balance sheet and its credit line.
• Electricity is not in the package: the employee charges at home on their own electricity contract, from taxed income, unless the employer reimburses it separately. That reimbursement is tax-free for a company car, salary sacrifice cars included.

The lease clauses that cost money at the end

Most of the surprises in a business EV lease arrive on the day the car goes back.

Mileage bands and excess mileage charges. The rental is priced on an annual mileage, typically 8,000 to 20,000 miles. Every mile above the contracted total is charged at the excess mileage rate in the contract, often several pence per mile. A car contracted at 10,000 miles a year that actually covers 14,000 ends a 4-year lease 16,000 miles over. At 10p per mile, that is £1,600 to pay at return. A quarterly mileage check lets you re-band the contract in time; our guide to fleet mileage tracking shows how.

Fair wear and tear. The BVRLA publishes the industry standard for what counts as acceptable wear on return (BVRLA fair wear and tear). Damage beyond it is charged. For EVs, check the condition rules for the charging cable, the charge port and the battery health statement.

Battery and warranty. Ask what battery health (state of health) the lessor expects at return, and whether the manufacturer's battery warranty covers the whole term and mileage.

Early termination. Ending a contract hire early typically costs a share of the remaining rentals. Build that into any decision on a driver who might leave.

Maintenance scope. Confirm whether tyres, which wear faster on heavy EVs, are included.

The cost the lease does not cover: home charging

A contract hire covers the car. A maintenance package covers servicing and tyres. Neither covers the energy.

For an EV, most of that energy is bought at the driver's home, on the driver's electricity contract. A car covering 12,000 miles a year at 0.32 kWh per mile uses about 3,840 kWh: about £1,010 a year at the October to December 2026 price cap rate of 26.32p per kWh (Ofgem), or about £340 on an EV off-peak tariff.

The employer can reimburse that electricity with no Income Tax and no National Insurance, private miles included, as long as the payment relates solely to the company car (HMRC EIM23900). The reimbursement is a deductible running cost for the company. What it needs is a record per car and per session.

Voltaback measures each home charging session from the car itself, across more than 48 brands, with no charger or box to install, and values each kWh at the driver's real tariff or at HMRC's 7p per mile Advisory Electricity Rate. Voltaback relies on the home's MID-certified meter, not on a standalone cable meter. You get a monthly export ready to import into your payroll software, and the company never receives the drivers' locations. Estimate the annual cost for your fleet with the home charging cost simulator, or see how we work with fleet managers.

Next step: close the gap the lease leaves open

The lease settles the car's cost and its tax. The electricity remains, month after month, on your drivers' own bills. Talk to our team to reimburse every kWh charged at home at its real cost, tax-free and with a record per vehicle.