Electric fleet orders are moving faster than policy predictions. Leasing firms report that electric company cars now account for more than 80% of new orders. That number already surpasses the government’s 2030 zero-emission vehicle mandate target. It’s a massive shift. But behind the headline figures, there’s a warning about weak retail demand and unstable policy landscapes.
The sector already manages more than a third of all electric vehicles in the UK. Yet the foundation of this growth is built on tax incentives that may not survive long-term political shifts.
The Tax Arbitrage That Drove the Boom
Why did the market change so quickly? It wasn’t just about green conscience. It was arithmetic.
When ultra-low benefit-in-kind (BIK) rates for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) returned in 2020, everything changed. Company cars are taxed on a “taxable value.” This value is a percentage of the list price, weighted heavily by CO2 emissions. Drivers pay this on top of their income tax—usually 20% or 40%, with different bands in Scotland.
Electric cars emit 0g/km CO2. They get the lowest rate. Currently, that rate sits at 4%. Compare that to at least 25% for even the most efficient non-plug-in petrol or diesel cars.
The result? A fivefold reduction in tax bills. Opting for a company EV became a no-brainer for high earners and corporations alike.
HMRC data backs up the surge. Between the 2020/2021 and 20242025 tax years, the number of company car drivers rose 24%. We are now looking at 920,00 people in this bracket. This figure includes salary sacrifice schemes, which tax vehicles emitting less than 75g/km at the same favorable BIK rates.
It’s a significant swing in behavior. And it has cost the treasury dearly.
The Revenue Gap
Here is the paradox. Despite more drivers and more expensive vehicles, the tax revenue from company cars has plummeted.
In the 2019/20 tax year, the system generated significantly more cash. Today, the average taxable value of these cars has halved. The sector contributed £3.07 billion last year. That’s 43% less—about £2.36 billion—than before the low tax rates kicked in.
The composition of the fleet tells the story:
* 51% of company cars are now pure EVs.
* 24% are PHEVs.
* The remaining 25% are internal combustion engines.
The British Vehicle Rental and Leasing Association (BVRLLA) paints an even starker picture in its latest Leasing Outlook report. Among BVRLA members, 90% of all company car orders are for electric vehicles. These EVs make up 47% of the combined business contract hire (BCH) fleets. That’s a total of 948,000 electric vehicles on the roads. The fleet grew 6.1% compared to the first quarter of 2024.
Salary Sacrifice Is Outpacing Personal Leasing
Personal contract hire (PCH), the traditional way individuals lease cars, is losing ground. Salary sacrifice schemes have exploded, up 165 year-on-year. We’re talking about 266,816 new cars in the scheme this year.
How does it work? You agree with your employer to lease a car through the company. Your monthly payment is taken from your salary before tax and National Insurance. If the car emits 75g/km of CO2 or less, you also pay that low 4% BIK rate on top.
This structure is now the most popular leasing method for individuals. An estimated 20–25% of all new EV sales in the UK end up in salary sacrifice schemes. Leasing firms now own roughly 750,00 of the UK’s two million electric cars.
The Retail Disconnect
But here’s the problem. The wholesale and company fleet engine is roaring. The retail consumer engine is sputtering.
BVRLA members are alarmed by the lack of support for private buyers. Only 20% of personal contract hire vehicles are electric. Why the disparity?
Because retail EVs suffer from weak second-hand demand. When firms need to remarket three-year-old electric vehicles, they often “hemorrhage” money. Aggressive discounts on brand-new cars—pushed by manufacturers trying to hit ZEV mandates—crash the residual values of older models.
Companies leasing cars into the BCH fleet take a hit. To mitigate this, they are turning to second-life leasing strategies. Spreading the losses over longer terms or different customer segments is now a survival tactic.
Used car volumes in the BCH fleet are rising sharply. There are 20,471 used vehicles in the fleet now, a 50% year-on-year increase. In salary sacrifice schemes, the rise is even more dramatic: 9,140 used cars, up 474%.
The industry is propping itself up with used inventory because new EV values are too volatile for private buyers to trust. It’s a bubble of tax-fueled demand in the corporate sector, masked by a reality where private buyers are hesitant to commit.
If policies shift, or if the tax incentives erode further, that 80% order book could evaporate. For now, the companies keep driving. The question is who buys the next round of batteries when the tax shield comes off.
