Electric Car Finance for Company Directors

Why This Guide Matters

As the UK accelerates towards net zero, electric vehicles (EVs) are no longer a fringe consideration—they’re fast becoming the default choice for forward-thinking businesses. For company directors, the shift to electric cars offers not just environmental benefits, but also financial incentives, tax breaks, and a chance to align with evolving corporate responsibility standards. However, the path to financing an electric car as a company director is not always straightforward.

With a host of finance options, changing government policies, and a dynamic market, it’s easy to feel overwhelmed. This guide is designed to demystify the process, answer pressing questions, and provide a clear route to making a sound financial decision. Whether you’re considering your first electric company car or looking to update your fleet, understanding your options is essential.

The Basics Explained

Electric car finance for company directors falls into several categories, each with distinct benefits and considerations. The most common arrangements include:

• Personal Contract Purchase (PCP): You pay a deposit, followed by manageable monthly payments. At the end, you can return, part-exchange, or buy the car outright.

• Hire Purchase (HP): After an initial deposit, you make regular payments until you own the car at the end of the term.

• Business Contract Hire (BCH): Effectively a long-term lease, with fixed monthly payments and no option to own the vehicle. Particularly popular for businesses looking to renew cars regularly.

• Salary Sacrifice Schemes: Employees (including directors) give up a portion of their salary in exchange for an EV, enjoying significant tax and National Insurance savings.

Understanding these options is crucial. Each has implications for tax, cash flow, and company balance sheets. The government’s ongoing push for electrification adds further incentives—like reduced Benefit-in-Kind (BIK) tax rates and exemption from road tax for zero-emission vehicles.

How It Affects You

As a company director, your choice of finance affects your personal and business finances. Here’s how:

• Taxation: Electric vehicles attract a Benefit-in-Kind (BIK) tax rate as low as 2% for 2024/25. This means significant potential savings on company car tax compared to petrol or diesel models.

• Cash Flow: Finance arrangements like PCP or HP allow you to spread the cost, making budgeting more manageable. Business Contract Hire can keep vehicles off your balance sheet, improving financial ratios.

• Corporate Image and Responsibility: Having a fleet of electric vehicles sends a clear message about your company’s commitment to sustainability, appealing to clients, investors, and employees alike.

• Running Costs: Electric cars are cheaper to ‘fuel’ than petrol or diesel. Maintenance costs are also typically lower, thanks to fewer moving parts.

Yet, upfront prices for EVs remain higher than their combustion counterparts, making the choice of finance option critical. Choosing the wrong product can erode savings gained elsewhere, so a clear understanding of each route is vital.

Our Approach

At Kandoo, we specialise in making complex finance decisions straightforward, especially for company directors considering electric vehicles. Here’s how we help:

1. Independent, Whole-of-Market Access
As a retail finance broker, we’re not tied to any single lender or manufacturer. This means we scan the entire market to find the most suitable finance deals, tailored to your specific needs and the unique requirements of your business.

2. Transparent Advice
We believe in clarity above all. We’ll lay out the costs, tax implications, and potential savings, ensuring you’re never caught out by hidden fees or restrictive terms.

3. Simplified Application Process
Our digital-first platform streamlines the application, keeping paperwork to a minimum. We handle the negotiation with lenders, guide you through eligibility checks, and ensure compliance with regulations.

4. Focus on Your Business Goals
We listen carefully to your objectives—be it cost reduction, sustainability, or fleet expansion. Our experts then recommend finance products that align with your strategy, whether that’s through Business Contract Hire for flexibility or Hire Purchase for asset ownership.

5. Support with Salary Sacrifice Schemes
For directors who also employ staff, we can help you set up salary sacrifice arrangements, unlocking additional savings and making EVs more accessible across your team.

6. Staying Up To Date
The EV finance market is changing rapidly. We keep our clients informed of regulatory shifts, tax changes, and new incentives—so your decision is always based on the latest intelligence.

Before You Decide

Before committing to any finance product, consider the following checks:

• Assess Your Usage: How many miles will you (or your team) drive? Is charging infrastructure available at your offices or employees’ homes?

• Review the Total Cost of Ownership: Factor in insurance, servicing, and residual value at the end of the term—not just monthly payments.

• Understand BIK and Tax Implications: Benefit-in-Kind rates are favourable now, but always check the latest Treasury announcements for future changes.

• Creditworthiness: As a director, your personal and company credit profiles may impact the deals available to you.

• Exit Terms: What happens at the end of your contract? Are there mileage restrictions or early termination penalties?

Taking the time to answer these questions can prevent unwelcome surprises and ensure your chosen product genuinely fits your needs.

What’s Real, What’s Hype

It’s easy to be swayed by bold claims from manufacturers or finance providers. Here’s what you need to know:

• Real: EVs genuinely offer lower running costs and tax advantages for company directors. Government BIK rates are currently at historic lows.

• Hype: Not every EV is a zero-cost solution. Charging costs can vary, and not all finance deals are created equal—headline rates can disguise hidden charges or restrictive terms.

• Real: The UK’s charging infrastructure is growing fast. Most directors will find public and private charging to be increasingly accessible.

• Hype: All companies must switch to electric today. While the transition is inevitable, timing should be dictated by your business’s readiness and needs.

Pros & Cons

Weighing these factors is essential to making a decision that suits your business and personal circumstances.

Other Options to Consider

While PCP, HP, and BCH are the most common, company directors may also consider:

• Outright Purchase: High upfront cost, but full ownership and no finance interest. May suit cash-rich businesses looking to claim capital allowances.

• Operating Lease: Different from contract hire, this can allow off-balance-sheet treatment and often includes maintenance.

• Personal Loans: Some directors prefer to borrow personally and lease the vehicle back to the business. This route requires careful tax planning.

• Car Clubs and Shared Ownership: For low-mileage or urban businesses, these new models can provide flexibility without long-term commitments.

It’s worth consulting with an accountant or finance adviser to weigh these alternatives against your business’s goals and cash flow.

FAQs

Q1: Are electric cars always cheaper for company directors?
Not always. While tax savings are significant, upfront costs and finance terms vary. It’s crucial to consider the total cost of ownership, including charging and depreciation.

Q2: Can I use a salary sacrifice scheme as a director?
Yes, provided you take a salary through PAYE. Salary sacrifice is available to directors and employees, offering substantial tax and NI savings.

Q3: What is the best finance option for low-mileage drivers?
Business Contract Hire or salary sacrifice can be cost-effective for those with predictable, low annual mileage. PCP may suit those wanting the option to buy at the end.

Q4: How does electric car depreciation affect my finance agreement?
Depreciation impacts the final value of the car at the end of the term. PCP and lease deals often factor this into monthly payments. It’s wise to check the Guaranteed Minimum Future Value (GMFV).

Q5: Will electric car incentives change?
Incentives are reviewed annually. BIK rates are set until April 2025, but always check for updated government policies before making long-term commitments.

Q6: Can my company reclaim VAT on an electric car?
If the car is used solely for business, VAT can be reclaimed. Partial use for personal travel may reduce eligibility. Consult your accountant for specifics.

Next Steps

If you’re considering an electric car as a company director, start by reviewing your business’s needs and current vehicle usage. Reach out to an independent broker like Kandoo for a tailored market comparison and transparent guidance. By staying informed and weighing your options carefully, you can make a decision that benefits both your business and the environment.