Lease an Electric Car Through the Company, or Claim 55p a Mile?

A client asked us this recently after an unplanned bill: his car needed replacing sooner than expected, it cost a lot in one go, and he wondered whether the next one ought to go through the company. He runs a VAT-registered limited company, does around 10,000 business miles and 2,000 private a year, and could charge an electric car at home.

It is one of the most common questions we get from Kent business owners. The honest answer turns on your own numbers, but the framework is learnable, and this year’s changes have moved it a long way.

First, the thing that catches everyone out

You cannot claim 55p a mile for a company car. These are two separate worlds and you pick one.

The 55p rate — HMRC’s Approved Mileage Allowance Payment, or AMAP — is for a car you own, used for business journeys. If the company owns or leases it, you are in the benefit-in-kind world instead, and business mileage is reimbursed at a much smaller advisory rate. So the question is never “can I do both?” but which route leaves you better off.

Route one: your own car, claim the mileage

Worth knowing if you have not looked at this since last year: the mileage rate went up in May 2026, from 45p to 55p for the first 10,000 business miles, backdated to 6 April 2026. That was the first increase since 2011, and it makes this route meaningfully better than it used to be. Above 10,000 miles the rate is still 25p.

On 10,000 business miles that is £5,500 a year, paid out of the company to you free of tax and National Insurance. The company deducts it against profits, so at 25% corporation tax it saves £1,375 — a net cost of about £4,125.

No P11D, no benefit in kind, no employer NIC. It is the simplest thing you can do. The catch is that the £5,500 has to cover everything: the car, insurance, tyres, servicing, depreciation and electricity.

One note for VAT-registered companies: you can normally reclaim the VAT on the fuel element of a mileage claim. For a petrol car that is worth having. For an EV charged at home it is close to worthless, because domestic electricity carries VAT at only 5%. Do not let VAT drive this decision.

Route two: the company leases an electric car

This is where the numbers have shifted, because the tax treatment of electric cars is deliberately generous. Four things matter.

The benefit in kind is very low. A fully electric company car is taxed on just 4% of its list price in 2026/27. On a £45,000 car that is a taxable benefit of £1,800, costing a higher-rate taxpayer £720 a year. A petrol equivalent can be six or seven times that percentage. The rate rises to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30 — climbing, but slowly and predictably.

The lease rentals are fully deductible. Cars emitting more than 50g/km suffer a 15% disallowance, so only 85% of the rental gets relief. An electric car is under that threshold, so 100% comes off taxable profits.

Half the VAT comes back — sometimes more. You can reclaim 50% of the VAT on the finance element. That block is automatic: you neither have to prove the private-use split nor can you improve on it. But it applies only to the finance element — if the agreement separately itemises maintenance or servicing, the VAT on that part is normally recoverable in full. Ask the leasing company to split the invoice, because many will not unless asked.

Home charging is not a taxable benefit. If the company reimburses the electricity used to charge a company electric car at home, HMRC accepts no benefit in kind arises. You do need to show the electricity went into the car rather than the house, which in practice means a charger that reports its own usage.

Putting numbers on it

Take that £45,000 electric car on a business lease at £550 a month plus VAT, with maintenance itemised separately at £50 a month plus VAT. Director on higher-rate tax, company paying 25% corporation tax, 10,000 business miles and 2,000 private.

Own car, claiming 55p: the company pays out £5,500 and saves £1,375 in corporation tax, so it costs the company about £4,125. You receive £5,500 tax-free and fund the entire car yourself out of it.

Company lease: rentals and maintenance come to roughly £7,860 after recovering £780 of VAT. All of that is deductible, saving about £1,965, so the company is out around £5,895. Add employer’s Class 1A National Insurance on the benefit — 15% of £1,800, so £270, itself deductible — and the company’s net cost is roughly £6,100. Your personal cost is the £720 of income tax on the benefit.

So the company route costs the business around £2,000 more a year. The question is whether that £2,000 buys you more than £2,000 of value — and usually it does, because in the first scenario your £5,500 has to fund a car that would cost you something like £7,900 a year to lease personally, before insurance. You are roughly £2,400 a year short, out of taxed income.

On these numbers the company lease wins. But change the inputs and it flips.

What actually moves the answer

Business mileage. The claim scales; the company car does not. At 20,000 business miles the claim is worth £8,000 and the picture changes completely. Below about 5,000 miles the company car is usually well ahead.

Whether the car is electric. The big one. At 4% an EV company car is cheap; run the same exercise with a petrol car at 30-something per cent and the mileage claim wins comfortably.

List price, not what you pay. The benefit uses the manufacturer’s list price including options, not your discounted rental. A well-specified car can carry a benefit out of proportion to what you actually pay.

Whether you would own that car anyway. If you need a family car regardless, the mileage claim contributes to something you were buying anyway. If the car exists mainly for the business, the company route usually makes more sense.

Two bits of a lease that catch people out

Excess mileage. You commit to an annual mileage and pay a pence-per-mile charge above it. On 12,000 miles a year, taking a 10,000-mile contract to shave the monthly payment is a false economy. Be honest at the start.

End-of-contract condition. The car is inspected against a fair-wear-and-tear standard when it goes back. Kerbed alloys, a cracked windscreen, scratches beyond a certain size — all rechargeable, and the bill lands when you were not expecting it. Keep the car tidy and photograph it before collection.

Expect the leasing company to want a personal guarantee from you as director too, especially if the company is young or has modest reserves. That is normal, but read what you sign.

So what would we tell you?

If you want an electric car, do around 10,000 business miles or fewer, and would not otherwise be buying that car, a company lease is very likely the better answer at current rates. The 4% benefit-in-kind rate is the reason.

If you do heavy business mileage, or you want petrol or diesel, stay with the 55p claim — and note it is worth considerably more this year than last.

What we would not do is decide on principle. On real numbers the gap is often only a few hundred pounds a year, and it moves with your list price, your mileage and your tax rate. It takes about twenty minutes to model, and it is worth doing before you sign a three-year contract.