NOW is the time for SME fleets to save money by leasing and take advantage of significant whole life costs savings arising from the forthcoming changes to capital allowances.
Fleet management and leasing firm, CBVC Vehicle Management, has crunched the numbers and found that, for example, leasing a Tesla Model 3 could result in a business saving in excess of £5,200, or nearly £8,000 for a BMW X5 xDrive45e over the term of the lease when compared with outright purchasing the same vehicle.
Within these significant allowance changes, which come into force in April, the 100% first-year allowance continues for cars with zero emissions until 2024/25 tax year.
However, cars qualifying for the main capital allowances rate of 18% will now only benefit if they achieve CO2 emissions of 1-50g/km, while cars with CO2 emissions above 50g/km will be subject to a write-down allowance on a continuing balance basis of just 6%.
With the SMMT suggesting that the average CO2 emissions of the cars in the UK is 124.5g/km, this leaves a significant number of cars subject to the highest writing down allowance pool.
Following the government’s Road to Zero plan, it is a crucial time for fleet decision-makers who need to determine whether it is more cost-effective to buy or lease zero-emission and ultra-low emission vehicles.
Mike Manners: “When you consider all the relevant costs, including discounted cash flow, leasing works out more favourably”
Mike Manners, managing director of CBVC Vehicle Management, said the changes to legislation concerning business car allowances, which are primarily designed to encourage fleets and businesses to move to zero-emission vehicles, plus the benefit in kind taxation and consequently Class 1A National Insurance changes, are significant for both fleets and drivers.
“When you consider all the relevant costs, including discounted cash flow, leasing works out more favourably. I would strongly encourage business fleets to reconsider their policies in light of these changes and take advantage of the bottom-line savings offered by a fully serviced lease.
“The savings for company car drivers are equivalent to a salary rise. For example, the driver of a diesel BMW 520d (P11D £43,540) would expect to pay company car tax amounting to £420 each month in the 2021/22 tax year at the 40% higher rate; the driver of a zero-emission Tesla Model 3 (P11D £43,490), meanwhile, would expect to pay company car tax of just £14.50 per month.
“For the business, the savings are also remarkable. The employer’s Class 1A National Insurance payable on the 5 Series above is £5,227 over a three-year period whereas the employer’s Class 1A National Insurance for the Tesla 3 is just £179. That’s a saving to the business of £5,048 over the period equivalent to £140.22 per month.”
These major changes to business car allowances are designed to encourage fleets and businesses to move to zero-emission vehicles.
Manners continued: “To fully appreciate the savings, fleets need to also look at vehicles on a whole life cost or total cost of ownership basis to fully work through all the tax effects and potential fuel cost savings. Doing this exercise creates a driver pick list that satisfies both drivers and their employers.
“Multi-bid vehicle funding, switching drivers to EVs and NIC savings for businesses, can help fleets achieve significant savings.”
How Do The Figures Measure Up?
Purchase Versus Lease On An EV
Tesla Model 3 Standard Plus 4dr Auto Saloon – Purchasing Costs
-
Depreciation £20,862.71
-
Maintenance £2,085.12
-
Business fuel £716.83
-
Insurance £1,283.01
-
Class 1A NIC £108.41
-
Other costs £174.46
-
True whole life cost £25,231
Tesla Model 3 Standard Plus 4dr Auto Saloon – Leasing Costs
-
Rental £15,736.21
-
Maintenance £2,117.16
-
Business fuel £716.83
-
Insurance £1,283.01
-
Class 1A NIC £108.41
-
True whole life cost £19,962
Answer: Leasing works out cheaper for an SME fleet by £5629
How Do The Figures Measure Up?
Purchase Versus Lease On A PHEV
BMW X5 xDrive45e M Sport 5dr Auto – Purchasing Costs
-
Depreciation £33,663.75
-
Maintenance £3,140.32
-
Business fuel £434.90
-
Insurance £1,283.01
-
Class 1A NIC £1,291.45
-
Other costs £832.70
-
True whole life cost £40,646
BMW X5 xDrive45e M Sport 5dr Auto – Leasing Costs
-
Rental £26,624.12
-
Maintenance £3,188.58
-
Business fuel £434.90
-
Insurance £1,283.01
-
Class 1A NIC £1,291.45
-
True whole life cost £32,822
Answer: Leasing works out cheaper for an SME fleet by £7824
Source for comparison: Gensen
CBVC Vehicle Management is a fleet management company based in Burton upon Trent in Staffordshire. It currently manages fleets of cars and light commercials ranging in size from 25 to 500. The company has been managing fleets effectively for the last 22 years.
JOIN THE DISCUSSION
Why not join the conversation on SME fleets – visit our LinkedIn SME Fleet Discussion page