Are there tax benefits to leasing an electric car?
There are plenty of benefits to leasing an electric car, from flexibility and affordability to vastly reduced running costs. But did you know that depending on your circumstances, there can also be big tax benefits to leasing an electric car?
Below we’re going to take a look at all things tax and the money you can save when leasing an electric car.
What are the benefits of leasing an EV?
The benefits of leasing an electric car are far and wide, affecting everything from the environment, to your wallet. A quick rundown, the major benefits include:
- Get a brand new EV delivered to your door
- Fixed monthly payments which allow you to budget
- Reduced running and maintenance costs
- Fewer risks and greater flexibility
- No depreciation of assets
For more information, check out our full guide to leasing an electric car.
In some instances, it’s possible to make even more savings, such as through an electric car salary sacrifice scheme or a business lease. Each of these options allows for significant tax savings – and even more than if you were to lease a petrol or diesel car.
What are the tax benefits?
While a personal lease still offers plenty of benefits, the juicy tax benefits come when you lease through a limited company or a salary sacrifice scheme.
With an operating lease, which is when you lease an EV through your company, the payments you make each month are deductible expenses. This means you can set it against your profits, which in turn reduces your corporation taxes.
A simple way of demonstrating how these savings work can be worked out like this:
You lease an EV at a cost of £9,600 over the financial year, which is 12 monthly payments of £800. You can then deduct that monthly cost against your company’s profits.
That means, with corporation tax set at 19%, you can calculate your savings with 19% x £9,600. This equates to £1,824 throughout the financial year.
It is and it isn’t. If you’re unfamiliar with financial operations, specifically those related to tax, then it can take a little research to get your head around. However, the potential significant savings mean it’s something worth considering.
That being said, the tax benefits of leasing are far simpler than the complexities involving your business buying electric cars. With buying, you have to consider the likes of depreciation, fixed assets and capital allowances, which is a whole new level of difficulty and can be very time-consuming to understand – particularly if you have little prior knowledge or experience.
What about VAT?
There can also be VAT savings when it comes to leasing, but it does limit how you can use your EV outside of work. If you solely use the car for work-related driving then, in theory, you can reclaim the VAT on the monthly cost. Unfortunately, this can be very difficult to prove – after all, what are the chances you didn’t once quickly nip out to pick up a dozen eggs? False claims could land you in hot water with HMRC.
However, while you may not be confident in claiming all of the VAT back, even if you use the car for business and personal reasons you’re still eligible to claim back 50%. This is also something you’re unable to do if your company owns the EV.
Okay, and road tax?
Currently, if you drive an electric car you don’t have to pay road tax, aka
Vehicle Excise Duty (VED). However, from 2025 drivers of all vehicles, regardless of the emissions produced, will have to pay VED.
In late 2022 the UK government announced the change, which includes a £10 VED rate for the first year for fully electric cars. Then, for every subsequent year, the rate will rise to that in line with internal combustion engine (ICE) vehicles, which is currently £165.
Until then, EV drivers will still enjoy the luxury of not having to pay road tax. While it’s certainly not a welcome change, even with paying this tax EV drivers will still make plenty of savings elsewhere.
Do you need an accountant to sort all this out for you?
As we’ve already highlighted, tax can be a complicated subject – one that you may not have the time or the inclination to learn about. However, the good news is that your accountant should be able to sort this out – it’s something they no doubt deal with regularly.
For example, you’ll need to complete the P11D form to report benefit-in-kind (BIK). This needs to be done before 6th July after the end of the previous tax year. If you’re not confident with admin tasks like these, you may want to leave it to an accountant.
Should you lease an electric car personally or through your company?
It’s hard for us to say which option is right for you. The tax benefits of leasing an electric car through your company can be high, but it depends on a number of factors including your own finances and the finances of your business.
Whichever way you choose, whether leasing personally or through your company, there are still plenty of advantages to leasing an electric car.
What is benefit-in-kind?
Benefit-in-kind is related to the benefits businesses provide to their employees that aren’t cash related, such as salary or a bonus. This includes healthcare, childcare and, of course, a company car. Benefit-in-kind tax is the tax paid on these benefits by employees.
When it comes to electric cars, the BIK rate has historically been exceptionally low and is currently just 2%. Alongside the electric car VED announcement in late 2022, the government confirmed that in 2025 this will rise annually by 1%, capping at 5% in 2028. While this is obviously not great news, it still ensures the BIK rate for EVs is way below that of ICE vehicles.
For more information, check out our guide to benefit-in-kind.
Leasing through your employer
If you’re an employee, then don’t be discouraged – there are still things your employer can do to ensure you save money if you’re interested in leasing an EV. A salary sacrifice scheme enables you to make your monthly lease payments on your gross salary. This means you don’t pay the tax on that amount, which can save you anything between 30 and 60%.
For more information, read through our guide on how salary sacrifice works.
What are the alternatives to leasing an EV?
If you’re not in a position to lease an EV, either through your company, your employer, or personally, there are still options available to you.
The first option is buying an EV. However, this can be daunting for several reasons, including the lack of flexibility, depreciation, and the big question of affordability.
The second option is an EV subscription. A subscription is similar to a lease, but with no deposit or hefty fees if you need to make changes to your contract. With an EV subscription, with just one monthly payment you’re provided with everything you need to drive the car, including tax, insurance, breakdown cover, and service and MOT. Plus, all of the above tax information applies to a subscription the same as it would to leasing.
EV subscriptions are also possible through your employer, so long as they sign up to be a part of the scheme. More information is available for employers in our employer guide to salary sacrifice.
Sound good? Browse our wide range of electric cars and explore how a subscription may just be the answer you’re looking for.
We compare some of the key differences between these two popular mobility options.
Is the lease of an electric car tax deductible?
Yes, because a fully electric car produces no emissions, the monthly lease repayments are tax deductible.
Can I claim a lease vehicle on taxes?
If you’re a limited company owner, you can claim a lease vehicle as an expense.