Unlocking Tax Relief: Contract Hire Electric Cars in the UK

Unlocking Tax Relief: Contract Hire Electric Cars in the UK


In recent years, the push for cleaner and more sustainable transportation has gained significant momentum. The adoption of electric vehicles (EVs) has played a pivotal role in reducing carbon emissions and improving air quality. To further incentivize this transition, the UK government has introduced several tax relief measures, particularly for contract hire electric cars. In this blog post, we will delve into the tax benefits associated with contract hire EVs, highlighting their advantages for individuals and businesses alike.

Enhanced Capital Allowances (ECAs)

Contract hire electric cars offer a range of financial advantages, and one notable benefit is Enhanced Capital Allowances (ECAs). ECAs allow businesses to claim the full cost of qualifying EVs against their taxable profits, providing significant tax relief. This means that businesses can reduce their tax liability, promoting the adoption of greener vehicles while simultaneously saving on costs.

Reduced Benefit-in-Kind (BIK) Tax

For employees and company car drivers, the reduced Benefit-in-Kind (BIK) tax on electric vehicles makes them an attractive option. BIK tax is a form of taxation levied on employees who receive non-cash benefits, such as company cars, as part of their remuneration package. With the UK government's commitment to reducing carbon emissions, electric vehicles have become subject to lower BIK tax rates compared to their petrol or diesel counterparts. This reduction in BIK tax further incentivizes individuals to choose contract hire electric cars, resulting in savings on their overall tax liability.

Zero Vehicle Excise Duty (VED)

Another noteworthy tax relief on contract hire electric cars in the UK is the zero Vehicle Excise Duty (VED), commonly known as road tax. Unlike traditional petrol or diesel vehicles, which are subject to VED based on their CO2 emissions, electric vehicles are exempt from this annual tax. This exemption provides an additional financial advantage for EV owners, reducing their overall cost of ownership and making contract hire electric cars an economically viable option.

Capital Allowances on Charging Infrastructure

In addition to tax relief on the vehicles themselves, businesses investing in charging infrastructure for electric vehicles can also benefit from capital allowances. The government's Capital Allowance scheme enables businesses to claim tax relief on the cost of installing EV charging points, further promoting the adoption of electric vehicles within their fleet. This measure encourages businesses to create an EV-friendly infrastructure, facilitating the transition to sustainable transportation and contributing to a greener future.

Value Added Tax (VAT) Benefits

Contract hire electric cars also offer VAT benefits, both for businesses and individuals. Businesses that lease electric vehicles through contract hire arrangements can usually recover 50% of the VAT on the leasing costs, further reducing their overall expenses. For individuals, VAT on electric vehicles is set at a reduced rate of 5%, making them more affordable compared to their conventionally fueled counterparts. These VAT benefits play a significant role in making contract hire electric cars an appealing option for both businesses and individuals.


The UK's commitment to reducing carbon emissions and promoting sustainable transportation has resulted in a range of tax relief measures for contract hire electric cars. Enhanced Capital Allowances, reduced BIK tax, zero VED, capital allowances on charging infrastructure, and VAT benefits have all contributed to making electric vehicles more financially viable for businesses and individuals. Embracing contract hire electric cars not only aligns with environmental goals but also offers significant tax advantages, making the transition to sustainable transportation a win-win situation. So, whether you're a business owner or an individual considering a new vehicle, exploring the tax relief options available for contract hire electric cars is undoubtedly a wise choice.