We talked to Jon of Jon Burdekin Fleet Consulting to get the lowdown on leasing an electric company car – and why it’s such a tax-efficient option for both employees and employers.
Jon, thanks for chatting with us. Can you first explain the differences between buying an electric car outright, and taking out a business lease on one?
Sure. When you’re looking to purchase an electric car, you could, of course, simply buy one. And you might immediately think that this is a cheaper option as you don’t have to pay interest to a leasing company. But it’s not quite as simple as that.
There are actually huge tax efficiencies to taking out a business lease. If you buy a car, you’ll always pay VAT on it. But if it’s not used for personal use, you can reclaim the VAT. The leasing company aren’t using it for personal use, and they’re the ones buying the car, so they can reclaim the VAT. And that means that you can lease it at a lower rate than buying.
So, yes, you’ll pay interest on a lease, but the VAT savings completely dwarf that, and that’s a major advantage over buying. Leasing companies also use their purchasing power to get a good price.
Lots of leasing companies, like CBVC, have whole-life cost calculators that can compare the cost differences between leasing and buying. They take everything into account. And you’ll see that, if you’re talking purely financially, it makes sense to lease. It’s the most cost-effective option.
That’s interesting. And are there other reasons, too?
Yes – risk is another issue to think about. One of the things you need to look at is the risk of a car losing value. If you buy it, it will probably be worth less a few years down the line – and that’s your risk. If you lease, from ElectriX for example, the leasing company shoulders that risk. And then you add in unexpected events like the pandemic, the currency crash and you really can’t predict what’s going to happen to car prices. Leasing gives you a fixed monthly budget. Though, obviously, you take the potential reward of increasing prices away, as well as removing the risk.
The other risk aspect that you remove is maintenance. As long as you take a maintenance package, again it’s the lease company that takes those risks.
So having a lease is good for cashflow as you always know what your costs and risks are – you won’t get any nasty surprises.
It sounds like a no brainer, really. Why would you buy instead of leasing?
Around 80% of companies lease, but not all of them, and there can be some valid reasons why buying might be better for some. For example, if you’re not sure how long you’re going to need the car for, and you’d prefer flexibility, then leasing might not be right as you could be hit with an early termination charge. But it’s worth remembering that you can reset your contract at any time if your mileage isn’t what you expected – up or down.
Also, if you’re, say, a plumber or a builder and you’re going to be using your vehicle for work, you need to remember that the leasing company will expect it back in reasonable condition. So this type of lease might not suit in that case.
And how does the tax work – shouldn’t I just get a personal lease?
For many years people have chosen to take the cash allowance and lease a car personally. They have to pay tax and NI on that allowance as if it’s their salary. They then have to find their own deal on a personal lease, and that will include VAT, so it’s less tax efficient.
But, in 2019, company car tax was effectively removed on electric car tax, and we’ve seen a huge surge in people choosing this route. Now you just pay 2% of purchase price as your benefit in kind and you’ll pay tax on that at your marginal rate. And this means that it’s incredible tax-efficient to choose an electric company car.
You also might be able to get a nicer electric car than you might otherwise be able to afford.
Is there anything else to think about?
Of course, you’ll never own the car – you’re basically just paying to use it, and it can take a while to get your head around that. I think a good way to think about it is like Spotify – instead of buying a CD these days, you stream. With a car, at the end of the lease, you give it back and lease another.
Leasing companies can help you with all sorts of things. They can advise on whether you should lease or buy. They also have influence with manufacturers, and it can be handy to have a leasing company on your side if you have any problems. They can support you in getting it sorted and negotiate on your behalf.
I get asked about this quite a lot from friends, as they know my line of work. Once I’ve explained everything, they nearly all go off to get a business lease on an electric car – there are just so many advantages.
With a 30-year career in the UK leasing and fleet finance industry, Jon founded Jon Burdekin Fleet Consulting to help clients make the transition to electric cars, unlocking the financial and environmental savings of switching to electric. Jon is a highly respected industry expert on electric car adoption and supports industry bodies such as the BVRLA and Association of Fleet Professionals.
Lease an electric car
Choose an electric car lease with ElectriX and CBVC to:
- Choose your dream electric car – pick the car you want the way you want it
- Plan your costs – fixed monthly payments
- Go personal or business – lease in your own name or through your business