Contract hire

Business contract hire and electric vehicles

What is a business contract hire/leasing agreement?

Contract hire is a long-term rental agreement and is the most common type of lease available in the UK. This is also referred to as an operating lease or “leasing” for short. This is a simple and popular way for a business to procure a new car on a fixed term contract and on a pre-agreed mileage. Contract hire is an alternative to financing a car via a bank loan, hire purchase or by utilising a cash-purchase.

It is important to note that contract hire and leasing is a “usership” finance product, which means that you will never own the vehicle. The vehicle will be registered in the name of the finance company. Please be aware that e-car lease are a credit broker and not a lender. You will be introduced to a limited number of finance providers which have been carefully selected by e-car lease. The finance providers that e-car lease use may make payment if you elect to enter into an agreement with them.

What key features of electric business contract hire leasing does a company need to consider?

If your business is looking to use contract hire you will have to select either a driver-maintained or funder-maintained contract. In relation to a driver-maintained contract, the business will undertake the cost of all servicing, maintenance and tyres. With a funder-maintained contract for an additional monthly sum your company can include the costs of all servicing, maintenance and tyres (and breakdown recovery in some cases). Do ensure that you consider both options as part of your electric vehicle suitability assessment.

Leasing is a credit based agreement, which means a finance company will need to review and underwrite your business in detail whether or not you are a sole trader, partnership, limited company or limited liability partnership. A personal guarantee from an individual director may be requested in some circumstances.  A person with the designated authority in your company will be asked to complete a detailed proposal form as part of this process.

While electric vehicles offer an advantageous position for company car tax, e-car lease do recommend that you take advice from your accountant before committing to a leasing deal. For a limited company or limited liability partnership, 100% of the rental are allowable against corporation tax so long as the car has CO2 of 110g/km or less (an electric car/van emits 0g/km of CO2). For VAT registered businesses 50% of the VAT on the finance element of the car lease can be reclaimed along with 100% of the VAT on the maintenance element if you elect to take a funder-maintained contract. For company vans, provided there is no personal use, 100% of the VAT can be reclaimed.

For a company car / van driver, they need to take into account the taxation which could be payable on the company vehicle - please note that cars and vans are treated slightly differently for tax by HMRC. For a company car, the driver needs to take into account the vehicle’s value (known as the P11d), their income tax threshold and the emissions of the vehicle. Because an electric vehicle emits 0g/km of CO2 there are some advantageous Benefit In Kind rates available.

For tax year 2021-2022, this is 1% and this will increase to 2% in 2022-2023, where it will remain at 2% for a number of years subject to the Government’s discretion. In comparison to a petrol or diesel car, an electric car offers a considerably better tax position. Company car tax examples are available from e-car lease upon request.

Whole of Life costs should form part of your fleet assessment. The cost of running a vehicle in the company is not limited to the monthly rental for finance and maintenance. A company also needs to take into account insurance, fuel and National Insurance contributions amongst other key facets. While electric cars/vans can offer cheaper running costs than a petrol or diesel alternative, whole of life examples are available from e-car lease upon request.

Benefits and advantages of business contract hire for an electric vehicle

• Flexible contract terms ranging from 24-60 months;
• Initial rentals to meet your financial requirements - from no initial rental arrangements (sometimes referred to as a “1/S”)  through to large initial rental contributions (sometimes referred to as a “12/S”), contract hire can offer the business financial flexibility; 
• Array of mileages to suit your annual requirements, with most finance companies offering contracts from 5,000 - 50,000 miles per annum (subject to suitability based on the electric vehicle requested);
• Ability to increase or decrease your mileage requirements during the contract with most finance companies - generally at least 12 months of the contract must have passed;  
• Maintenance of an EV can be included in monthly rentals, so business contract hire can spread the cost of all maintenance, tyres and servicing;
• Fixed rentals for the whole agreement, which makes budget planning easier and provides companies with true fixed cost motoring; and
• Contract hire removes the associated risks of owning electric vehicles and depreciation. The risk and time issues associated with electric vehicle disposal rests with the finance company.

Disadvantages of business contract hire for an electric vehicle

• There is no ability to own the car/van at the end of the contract. Most finance companies will collect the EV at contract cessation;
• Contract Hire and Leasing does not allow a business to claim back the entire capital cost of the vehicle. Some companies may prefer the Annual Investment Allowance or new Super-Deduction tax relief approach;    
• Excess mileage penalties will apply where contract mileage is exceeded; and
• Where damage on the vehicle exceeds the BVRLA’s fair wear and tear standards, the company will be charged at the point of collection.