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What is business contract hire and why is it good for electric vehicles?

Business contract hire is a highly popular way for businesses to finance their vehicles. So, what is it and does it work with electric vehicles?

What is business contract hire?

Business contract hire is a finance rental agreement that allows a company to lease vehicles for an agreed period and mileage, rather than purchasing outright.

What are the positives of vehicle leasing? 

  • No large capital outlay - the vehicle is leased not owned 
  • VAT savings – VAT registered businesses can claim up to 100% of the VAT on the lease if the use is entirely business or 50% of the VAT if there is personal use. 100% of the VAT on maintenance costs can also be claimed back. 
  • Fixed monthly payments – easy budgeting 
  • No vehicle disposal risk or hassle 
  • No balloon payment at the end of contract 
  • Flexible contract length terms
  • Maintenance can be included in the monthly rental

Is business leasing good for electric vehicles?

In short, yes, business contract hire works well with EVs due to tax advantages - plus there are other business benefits: 

  • Low Benefit in Kind (BiK) taxation rates – electric BiK rates are 2% until 2025, compared with petrol / diesel with rates up to 40%. Effectively, this gives employees a pay rise, plus there is reduced Class 1a NIC to pay on the benefit 
  • Business leasing rates for EVs are typically lower than personal lease rates which makes EVs more accessible for employees 
  • More EVs on fleet offers lower fuel bills 
  • Supports business environmental, social and governance (ESG) agenda by reducing carbon impact of company fleet

What factors affect the monthly lease cost?

Once the business has selected the vehicles required, there are four factors which will affect the monthly rental payments:

  1. Initial rental – this is a multiple of the monthly rental which is typically between 1 and 12 months
  2. Length of rental term – this can be between 24 and 48 months
  3. Annual mileage – the number of miles the vehicle will cover per year
  4. Optional maintenance – maintenance can be included in the monthly charge, which has the benefit of fixing motoring costs, or it can be handled separately by the business  

What else should businesses be aware of when considering leasing?

  • Return standards – at the end of the contract the car should be returned in good condition to avoid damage repair charges. Industry standards are set out in the BVRLA’s fair wear and tear guide. If a vehicle has damage outside of these parameters, costs for vehicle rectification will be incurred
  • Early termination – if there is a requirement to change the vehicle part way through the agreement, this will incur early termination fees which can be costly
  • Mileage – the vehicle should be kept within the agreed mileage level or the business will be liable for excess mileage charges
  • Maintenance – the leased vehicles need to be maintained in line with the manufacturer’s specification

What are the options at the end of the lease?

With business contract hire, there is no option to purchase the vehicle. At end of lease, the vehicle is either returned or there may be the option to extend the lease in agreement with the finance provider.

How can ElectriX help?

ElectriX is an EV specialist, powered by LV= General Insurance. We make it easy for businesses to switch to electric - we offer business contract hire and salary sacrifice, plus personal leasing solutions. And to make it even simpler, we can package the car, cover and charger.

Find out more about business contract hire from ElectriX here.

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