Leasing a vehicle — through PCP, personal contract hire, or business finance — raises specific questions about road tax. The legal keeper on the V5C determines who is responsible for taxing the vehicle, and in a lease agreement, this can be the finance company or the lessee depending on the arrangement.

VED on Personal Contract Purchase (PCP)

Under a PCP agreement, you are the registered keeper of the vehicle during the agreement period, even though the finance company may hold legal ownership. This means you are responsible for taxing the vehicle each year. Road tax is a separate cost from your monthly PCP payment — it is not included. You must tax the vehicle yourself using the V5C, which will be in your name as the keeper. At the end of the PCP, if you hand the car back, you return it without further tax liability.

VED on Personal Contract Hire (PCH)

PCH agreements are similar to long-term rental. Under PCH, the lease company is typically the registered keeper and responsible for taxing the vehicle. The monthly payment usually includes road tax — known as "road fund licence included" — so you do not need to separately arrange tax. However, you should confirm with your lease company what is included in the monthly payment. If the lease company fails to tax the vehicle, they are liable, but you will be unable to drive legally.

Business Lease Vehicles

Business lease vehicles may be registered in the company's name or the employee's name depending on the agreement. Company vehicles are typically taxed by the business. If the vehicle is registered to the company, the business pays VED as the keeper. Some business lease agreements pass the tax responsibility to the employee, particularly for salary sacrifice schemes. In these cases, employees are responsible for taxing the vehicle in their own name as keeper.

Company Car Tax and Lease Vehicles

If you lease a company car, the Benefit-in-Kind (BiK) tax rules apply. Your employer reports the company car as a taxable benefit on your P11D. The BiK value is based on the vehicle's P11D price and its CO2 emissions — lower-emission vehicles have lower BiK percentages and cost less in tax. Electric company cars with zero CO2 have a BiK rate of just 2% — making them significantly cheaper for employees than high-emission alternatives, even after lease costs are factored in.

What Happens at the End of a Lease

When you return a leased vehicle, the lease company handles the deregistration. You do not need to cancel road tax separately — the lease company will handle this when they take the vehicle back. If you are paying for road tax separately during the lease period, you should stop paying once the vehicle is returned. Any remaining full months of tax may be refundable — check with DVLA or your lease provider about the process for claiming a refund for unused tax periods.